The Human Side of Structural Transformation

We show that the global human capital increase during the 20th-century contributed to structural transformation. We document that almost half of the decline in aggregate agricultural employment was driven by new birth cohorts entering the labor market. We use data on educational attainment and compile a comprehensive list of policy reforms to interpret the differences in agricultural employment across cohorts. We find that the increase in schooling led to a sharp reduction in the agricultural labor supply by equipping younger cohorts with skills more valued out of agriculture. Interpreted through an equilibrium model of frictional labor reallocation, these facts imply that human capital growth accounts for about 20% of the global decline in agricultural employment.