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Heterogeneity in the Production of Human Capital

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  • Polachek, Solomon

    ()
    (Binghamton University, New York)

  • Das, Tirthatanmoy

    ()
    (University of Central Florida)

  • Thamma-Apiroam, Rewat

    ()
    (Kasetsart University)

Abstract

We derive a tractable nonlinear earnings function which we estimate separately for each individual in the NLSY79 data. These estimates yield five important parameters for each individual: three ability measures (two representing the ability to learn and one the ability to earn), a rate of skill depreciation, and a time discount rate. In addition, we obtain a population wide estimate of the rental rate of human capital. To illustrate heterogeneity in the production of human capital, we plot the distribution of these parameters along with NLSY79 reported AFQT scores. By utilizing these parameters, we are able to verify a number of heretofore untested theorems based on the life-cycle human capital model. In addition, we are able to show how these human capital production function parameters relate to cognitive ability, personality traits, and family background. Among our results, we find: Black-white differences in ability are smaller than those exhibited in standardized tests. Blacks have higher time discount and skill depreciation rates than whites. Individuals with higher time discount rates and greater rates of skill depreciation have fewer years of school. Individuals with both a high internal locus of control and self-esteem exhibit greater ability, lower skill depreciation, and smaller time discount rates. Individuals inclined towards depression have higher time discount rates. Agreeable, open, conscientious and extrovert individuals have a greater ability to learn but not necessarily a greater ability to earn. Neurotic individuals have a lower ability to learn. Higher parental education is associated with a greater ability to learn, lower skill depreciation, and a smaller time discount rate. Educational stimuli, such as growing up in a household that subscribed to magazines, are associated with higher ability. Conversely, growing up poor is associated with lower ability.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7335.

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Length: 61 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7335

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Keywords: life-cycle model; ability to learn; ability to earn; heterogeneity; earnings function;

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  1. Johnson, Thomas, 1970. "Returns from Investment in Human Capital," American Economic Review, American Economic Association, vol. 60(4), pages 546-60, September.
  2. Polachek, Solomon William, 1975. "Differences in Expected Post-school Investments as a Determinant of Market Wage Differentials," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 451-70, June.
  3. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  4. Ian W.H. Parry & Kenneth A. Small, 2007. "Should Urban Transit Subsidies Be Reduced?," Working Papers 060723, University of California-Irvine, Department of Economics.
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  6. Boivin, Jean & Giannoni, Marc & Mihov, Ilian, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," CEPR Discussion Papers 6101, C.E.P.R. Discussion Papers.
  7. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  8. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  9. Polachek, Solomon William, 1981. "Occupational Self-Selection: A Human Capital Approach to Sex Differences in Occupational Structure," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 60-69, February.
  10. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  11. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
  12. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, octubre-d.
  13. White, Kenneth J, 1992. "The Durbin-Watson Test for Autocorrelation in Nonlinear Models," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 370-73, May.
  14. Racine, Jeff & Li, Qi, 2004. "Nonparametric estimation of regression functions with both categorical and continuous data," Journal of Econometrics, Elsevier, vol. 119(1), pages 99-130, March.
  15. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-38, November.
  16. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
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