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Human Capital Investment under Exit Options: Evidence from a Natural Quasi-Experiment

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  • Chand, Satish

    (University of New South Wales)

  • Clemens, Michael A.

    (George Mason University)

Abstract

Theory suggests that groups historically subject to discrimination, such as Jews, could exhibit traditionally high investment in education because discrimination spurred exit facilitated by human capital. Theory moreover suggests that if exit is uncertain, it could induce investment in skill that more-than-offsets the mechanical reduction in skill stocks at the origin. Tests of such theories are difficult and few. We examine a unique natural quasiexperiment in the Republic of Fiji, in which a sharp increase in discrimination induced mass exit by one ethnic group and mass skill investment by the same group. We show that the induced investment more than offset the loss from exit, producing a net increase in skill stocks. We argue with theory and a range of nonexperimental falsification tests that exit by skilled workers was a necessary causal mechanism of the offsetting skill investment.

Suggested Citation

  • Chand, Satish & Clemens, Michael A., 2019. "Human Capital Investment under Exit Options: Evidence from a Natural Quasi-Experiment," IZA Discussion Papers 12173, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12173
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    More about this item

    Keywords

    commonwealth; selection; schooling; discrimination; ethnic; Asian; Jewish; education; human capital; training; university; college; postsecondary; tertiary; student; skill; emigration; immigration; migration; brain drain; Australia; New Zealand; Canada; Pacific; brain gain; natural experiment; Fiji;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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