From Skills to Occupations: Comparative Advantage and Cross-Country Income Differences

We revisit the role of human capital in cross-country income differences. We develop a general equilibrium model where workers of different skill groups sort into occupations by comparative advantage. Wages and employment depend on workers' skill quality, occupation-specific country-embedded productivity, and occupational distortions. Using harmonized microdata for 50 countries, we infer these components from the model's equilibrium conditions. Workers in rich countries exhibit higher skill quality and substantially greater productivity, especially in white-collar occupations. Human capital explains 52 percent of output-per-worker gaps, largely through the complementarity between skill composition and quality, and further amplified by technology choices biased toward skilled labor. Adopting the US distribution of skill groups yields limited gains for poor countries without higher quality. Occupational distortions are more severe in low-income countries, reducing white-collar employment and raising wage premia, but with modest aggregate effects.