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The efficiency of human capital allocations in developing countries

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  • Vollrath, Dietrich

Abstract

For a set of 14 developing countries I evaluate whether differences in wage gaps between sectors – estimated from individual-level wage data – have meaningful effects on aggregate productivity. Under the most generous assumptions regarding the homogeneity of human capital, my analysis shows that eliminating wedges between wages in different sectors leads to gains in output of less than 5% for most countries. These estimated gains of reallocation represent an upper bound as some of the observed differences in wages are due to unmeasured human capital. Under reasonable assumptions on the amount of unmeasured human capital the gains from reallocation fall well below 3%. Compared to similar estimates made using data from the U.S., developing countries would gain more from a reallocation of human capital, but the differences are too small to account for a meaningful portion of the gap in income per capita with the United States.

Suggested Citation

  • Vollrath, Dietrich, 2014. "The efficiency of human capital allocations in developing countries," Journal of Development Economics, Elsevier, vol. 108(C), pages 106-118.
  • Handle: RePEc:eee:deveco:v:108:y:2014:i:c:p:106-118
    DOI: 10.1016/j.jdeveco.2014.01.009
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Herrendorf and Schoellman on Labor Allocations
      by dvollrath in The Growth Economics Blog on 2014-07-13 20:29:10

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    5. Ija Trapeznikova & Juan Pablo Rud, 2015. "Wage Dispersion, Job Creation and Development: Evidence from Sub-Saharan Africa," 2015 Meeting Papers 1005, Society for Economic Dynamics.
    6. Chakraborty, Pavel & Singh, Rahul & Soundararajan, Vidhya, 2022. "Import Competition, Formalization, and the Role of Contract Labor," IZA Discussion Papers 15760, Institute of Labor Economics (IZA).
    7. Pavel Chakraborty & Rahul Singh & Vidhya Soundararajan, 2021. "Import Competition, Formalization, and the Role of Contract Labor," Working Papers 332157179, Lancaster University Management School, Economics Department.
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    9. Yao, Yao, 2019. "Does higher education expansion enhance productivity?," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 169-194.
    10. Jorge Alvarez, 2017. "The Agricultural Wage Gap: Evidence from Brazilian Micro-data," 2017 Meeting Papers 825, Society for Economic Dynamics.

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    More about this item

    Keywords

    Misallocation; Human capital; Aggregate productivity; Structural transformation; Wage differentials;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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