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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: ftp://ftp2.census.gov/ces/tp/tp-2002-09.pdf
    File Function: Revised version, 2003
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    References listed on IDEAS

    as
    1. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
    2. Simon D Woodcock, 2002. "Agent Heterogeneity and Learning: An Application to Labor Markets," Longitudinal Employer-Household Dynamics Technical Papers 2002-20, Center for Economic Studies, U.S. Census Bureau.
    3. John M. Abowd & John Haltiwanger & Julia I. Lane & Kristin Sandusky, 2001. "Within and Between Firm Changes in Human Capital, Technology, and Productivity Preliminary and incomplete," Longitudinal Employer-Household Dynamics Technical Papers 2001-03, Center for Economic Studies, U.S. Census Bureau.
    4. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, pages 685-709.
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    6. Martha Harrison Stinson, 2002. "Estimating the Relationship between Employer-Provided Health Insurance, Worker Mobility, and Wages," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B1-2, International Conferences on Panel Data.
    7. John M. Abowd & John Haltiwanger & Ron Jarmin & Julia Lane & Paul Lengermann & Kristin McCue & Kevin McKinney & Kristin Sandusky, 2005. "The Relation among Human Capital, Productivity, and Market Value: Building Up from Micro Evidence," NBER Chapters,in: Measuring Capital in the New Economy, pages 153-204 National Bureau of Economic Research, Inc.
    8. Charles L. Evans & Steven Strongin & Francesca Eugeni, 1993. "A policymaker's guide to indicators of economic activity," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    9. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, pages 251-334.
    10. Paul A. Lengermann, 2002. "Is it Who You Are, Where You Work, or With Whom You Work? Reassessing the Relationship Between Skill Segregation and Wage Inequality," Longitudinal Employer-Household Dynamics Technical Papers 2002-10, Center for Economic Studies, U.S. Census Bureau.
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    15. Abowd, John M. & Vilhuber, Lars, 2005. "The Sensitivity of Economic Statistics to Coding Errors in Personal Identifiers," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 133-152, April.
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    19. John M. Abowd & Bryce E. Stephens & Lars Vilhuber & Fredrik Andersson & Kevin L. McKinney & Marc Roemer & Simon Woodcock, 2009. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 149-230 National Bureau of Economic Research, Inc.
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    Full references (including those not matched with items on IDEAS)

    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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