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The Measurement of Human Capital in the U.S. Economy

Author

Listed:
  • John M. Abowd
  • Paul A. Lengermann
  • Kevin L. McKinney

Abstract

We develop a new approach to measuring human capital that permits the distinction of both observable and unobservable dimensions of skill by associating human capital with the portable part of an individual’s wage rate. Using new large-scale, integrated employer-employee data containing information on 68 million individuals and 3.6 million firms, we explain a very large proportion (84%) of the total variation in wages rates and attribute substantial variation to both individual and employer heterogeneity. While the wage distribution remained largely unchanged between 1992-1997, we document a pronounced right shift in the overall distribution of human capital. Most workers entering our sample, while less experienced, were otherwise more highly skilled, a difference which can be attributed almost exclusively to unobservables. Nevertheless, compared to exiters and continuers, entrants exhibited a greater tendency to match to firms paying below average internal wages. Firms reduced employment shares of low skilled workers and increased employment shares of high skilled workers in virtually every industry. Our results strongly suggest that the distribution of human capital will continue to shift to the right, implying a continuing up-skilling of the employed labor force.

Suggested Citation

  • 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.
  • Handle: RePEc:cen:tpaper:2002-09
    as

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    File URL: https://www2.census.gov/ces/tp/tp-2002-09.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    human capital; employer-employee data;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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