Matching Up The Data On Education With Economic Growth Models
The growth literature has not yet established how data on education should be introduced in theories involving human capital. Early work used enrolment rates as a proxy of human capital whereas more recently it has utilized measures of average educational attainment taking advantage of new data sets. This paper examines alternative specifications of human capital that may match up with the existing data on education. First, we present a standard neoclassical two-sector growth model that adopts a human capital specification proposed in recent papers. In this model the fraction of individual's time endowment in school is viewed as an investment rate. We show that the optimally chosen educational attainment predicted by the calibrated model is very high and does not correspond to the data. Next, we consider two extensions of the basic model: (a) allow for different elasticities of substitution between skilled and unskilled labor, (b) introduce work experience. We find that neither of the two extensions are able to generate plausible predictions. Finally, we propose an alternative specification of human capital based on a law of motion of educational attainment that successfully matches up with the data.
|Date of creation:||Nov 2002|
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