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A Wage Based Measure of Aggregate Human Capital

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  • João Cerejeira

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Abstract

The role of the accumulation of human capital to per capita income growth has been sharply debated among economists and policy makers. One open question of this debate is how to measure human capital. The standard approach is to use the average years of education of the labour force or the school enrolment rates as proxies for the stock of human capital. However, formal schooling achievement does not fully capture all the human capital stock. In fact, other forms of human capital accumulation are unmeasured. Also, it is assumed that the productivity differentials among workers with different levels of schooling are proportional to their years of education. In order to solve these problems, we develop the Mulligan and Sala-i-Martin’s measure of human capital based, on labour income. This measure has some nice properties: is consistent with variable elasticities of substitution across types of workers, and does not impose all workers with the same amount of education to have the same amount of skill. It is also allowed for changes in the relative productivities over time and across different economies. We compute the index at the firm level and, finally, and we compare the evolution of our index with the evolution of average years of education for the Portuguese regions, highlighting the shortcomings of the latter measure of human capital. Keywords: Human capital, wages, income based measures JEL Classification: E24, J24, I21

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa04p245.

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Date of creation: Aug 2004
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Handle: RePEc:wiw:wiwrsa:ersa04p245

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  1. Mulligan, C. B. & Sala-i-Martin, X., 1997. "A labor income-based measure of the value of human capital: An application to the states of the United States," Japan and the World Economy, Elsevier, Elsevier, vol. 9(2), pages 159-191, May.
  2. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S71-102, October.
  3. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  4. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  5. Pritchett, Lant, 1996. "Where has all the education gone?," Policy Research Working Paper Series, The World Bank 1581, The World Bank.
  6. Mulligan, Casey B & Sala-i-Martin, Xavier, 1995. "Measuring Aggregate Human Capital," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1149, C.E.P.R. Discussion Papers.
  7. Kalaitzidakis, Pantelis, et al, 2001. " Measures of Human Capital and Nonlinearities in Economic Growth," Journal of Economic Growth, Springer, Springer, vol. 6(3), pages 229-54, September.
  8. Cardoso, Ana Rute, 1998. "Earnings Inequality in Portugal: High and Rising?," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 44(3), pages 325-43, September.
  9. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(2), pages 143-173, October.
  10. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 37(1), pages 112-156, March.
  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
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