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Measurement of Labor Quality Growth: Caused by Unobservable Characteristics

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Abstract

The standard economy-wide indices of labor quality (or human capital) largely ignore the role of unobservable worker characteristics. In this paper, we develop a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991-2006, we find that a large part of growth in labor quality is caused by shifts in the distribution of unobservable characteristics. The contributions to growth attributed to education and age are corrected downwards, if unobservable worker characteristics are taken into account. Yet the standard indices of labor quality appear to be robust to this extension.

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  • Mathias Zurlinden & Thomas Bolli, 2008. "Measurement of Labor Quality Growth: Caused by Unobservable Characteristics," KOF Working papers 08-203, KOF Swiss Economic Institute, ETH Zurich.
  • Handle: RePEc:kof:wpskof:08-203
    DOI: 10.3929/ethz-a-005666794
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    1. Daniel Aaronson & Daniel G. Sullivan, 2002. "Growth in worker quality," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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    6. Venetia Bell & Pablo Burriel-Llombart & Jerry Jones, 2005. "A quality-adjusted labour input series for the United Kingdom (1975-2002)," Bank of England working papers 280, Bank of England.
    7. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    8. Guido Schwerdt & Jarkko Turunen, 2007. "Growth In Euro Area Labor Quality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 716-734, December.
    9. Ramón E. López & Vinod Thomas & Yan Wang, 2008. "The Quality of Growth," World Bank Publications - Books, The World Bank Group, number 28198, December.
    10. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    11. Thomas Bolli & Mathias Zurlinden, 2009. "Measuring Growth of Labor Quality and the Quality-Adjusted Unemployment Rate in Switzerland," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 55(2), pages 121-145.
    12. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
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    2. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2011. "The Importance Of Skill Measurement For Growth Accounting," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(2), pages 293-305, June.
    3. Han, Jong-Suk & Lee, Jong-Wha, 2020. "Demographic change, human capital, and economic growth in Korea," Japan and the World Economy, Elsevier, vol. 53(C).
    4. Laura-Maria DINDIRE, 2012. "Assessment Model Of The Nations? Human Capital - The Case Of The Eu Countries," Management Strategies Journal, Constantin Brancoveanu University, vol. 18(4), pages 21-27.

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    More about this item

    Keywords

    Human capital; Labor quality;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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