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Human capital aggregation and relative wages across countries

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  • Pandey, Manish

Abstract

Most of the growth accounting literature relies on an aggregate production function to determine the contribution of factors of production relative to that of total factor productivity (TFP) in explaining differences in incomes across countries. I show that the importance of TFP in accounting for cross-country income differences depends crucially on how skilled and unskilled labor are aggregated. Further, cross-country evidence on the relationship between relative wages and relative endowments of skilled and unskilled labor suggests that the two types of labor should not be aggregated into a single factor of production. Growth accounting decomposition using a commonly used nested-CES aggregate production function that allows skilled and unskilled labor to be used as separate factors of production results in a significantly greater role for TFP in accounting for income differences across countries than that found by past studies. The finding that different aggregate production functions lead to significantly different conclusions about the role of TFP in accounting for cross-country income differences calls for a more general approach to understanding such differences.

Suggested Citation

  • Pandey, Manish, 2008. "Human capital aggregation and relative wages across countries," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1587-1601, December.
  • Handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1587-1601
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    Citations

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    Cited by:

    1. Jakub Growiec, 2013. "On the measurement of technological progress across countries," Bank i Kredyt, Narodowy Bank Polski, vol. 44(5), pages 467-504.
    2. Growiec, Jakub, 2010. "Human Capital, Aggregation, And Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 14(02), pages 189-211, April.
    3. Growiec, Jakub, 2008. "Productivity differences across OECD countries, 1970–2000: the world technology frontier revisited," MPRA Paper 11605, University Library of Munich, Germany.
    4. Jakub Growiec, 2012. "The World Technology Frontier: What Can We Learn from the US States?-super-," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(6), pages 777-807, December.
    5. Growiec, Jakub & Groth, Christian, 2015. "On aggregating human capital across heterogeneous cohorts," Mathematical Social Sciences, Elsevier, vol. 78(C), pages 21-38.
    6. André Mollick, 2011. "The world elasticity of labor substitution across education levels," Empirical Economics, Springer, vol. 41(3), pages 769-785, December.
    7. Arne Henningsen & Géraldine Henningsen, 2011. "Econometric Estimation of the “Constant Elasticity of Substitution" Function in R: Package micEconCES," IFRO Working Paper 2011/9, University of Copenhagen, Department of Food and Resource Economics.
    8. Jakub Growiec & Christian Groth, 2012. "A Note on Aggregating Human Capital Across Heterogeneous Cohorts," EcoMod2012 4193, EcoMod.

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