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The Demand for Human Capital: A Microeconomic Approach

  • Michael Gort
  • Seong-Hoon Lee
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    We propose a model for explaining the demand for human capital based on a CES production function with human capital as an explicit argument in the function. The resulting factor demand model is tested with data on roughly 6,000 plants from the Census Bureau’s Longitudinal Research Database. The results show strong complementarity between physical and human capital. Moreover, the complementarity is greater in high than in low technology industries. The results also show that physical capital of more recent vintage is associated with a higher demand for human capital. While the age of a plant as a reflection of learning-by-doing is positively related to the accumulation of human capital, this relation is more pronounced in low technology industries.

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    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 01-16.

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    Date of creation: Dec 2001
    Date of revision:
    Handle: RePEc:cen:wpaper:01-16
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    1. Fellner, William, 1969. "Specific interpretations of learning by doing," Journal of Economic Theory, Elsevier, vol. 1(2), pages 119-140, August.
    2. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
    3. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    4. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
    5. Dunne, Timothy & Schmitz, James A, Jr, 1995. "Wages, Employment Structure and Employer Size-Wage Premia: Their Relationship to Advanced-Technology Usage at US Manufacturing Establishments," Economica, London School of Economics and Political Science, vol. 62(245), pages 89-107, February.
    6. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
    7. Fallon, P R & Layard, P R G, 1975. "Capital-Skill Complementarity, Income Distribution, and Output Accounting," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 279-301, April.
    8. Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
    9. Sato, Ryuzo, 1977. "Homothetic and Non-Homothetic CES Production Functions," American Economic Review, American Economic Association, vol. 67(4), pages 559-69, September.
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