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Measurement of labour quality growth caused by unobservable characteristics

  • Thomas Bolli
  • Mathias Zurlinden

The standard economy-wide indices of labour quality (or human capital) largely ignore the role of unobservable worker characteristics. In this article, we develop a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991 to 2006, we find that a large part of growth in labour quality is caused by shifts in the distribution of unobservable worker characteristics. The overall index differs little from the standard indices, but contributions to growth attributed to education and age are corrected downwards.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.564140
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 18 (June)
Pages: 2297-2308

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Handle: RePEc:taf:applec:44:y:2012:i:18:p:2297-2308
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  1. Schwerdt, Guido & Turunen, Jarkko, 2006. "Growth in euro area labour quality," Working Paper Series 0575, European Central Bank.
  2. Thomas Bolli & Mathias Zurlinden, 2009. "Measuring Growth of Labor Quality and the Quality-Adjusted Unemployment Rate in Switzerland," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 55(2), pages 121-145.
  3. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Universite de Montreal, Departement de sciences economiques.
  4. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
  5. Daniel Aaronson & Daniel Sullivan, 2001. "Growth in worker quality," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 53-74.
  6. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
  7. Venetia Bell & Pablo Burriel-Llombart & Jerry Jones, 2005. "A quality-adjusted labour input series for the United Kingdom (1975-2002)," Bank of England working papers 280, Bank of England.
  8. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
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