Why do South Korean firms produce so much more output per worker than Ghanaian ones?
The labour productivity differentials between manufacturing firms in Ghana and South Korea exceed those implied by macro analysis. Median value-added per employee is nearly 40 times higher in South Korea than Ghana. The most important single factor in explaining this difference is the Mincerian return to skills which differ by a factor of three between Ghana and South Korea. There is no significant difference in total factor productivity across the countries once we allow for human capital. Our results are consistent with those who have argued that rises in the return to education within developed countries can be explained by skill-biased technical progress in those economies. They are also consistent with work in developing countries which finds a convex return to education based on individual labour market data. Allowing for differences in the shape of the relationship between productivity and human capital across countries is crucial for understanding the role of human capital in increasing productivity.
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