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The estimation of Human Capital in structural models with flexible specification

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  • Pietro Giorgio Lovaglio

    () (Dept. of Quantitative Methods, University of Bicocca-Milan)

  • Giuseppe Folloni

    (Department of Economics, University of Trento)

Abstract

The present paper focuses on statistical models for estimating Human Capital (HC) at disaggregated level (worker, household, graduates). The more recent literature on HC as a latent variable states that HC can be reasonably considered a broader multi-dimensional non-observable construct, depending on several and interrelate causes, and indirectly measured by many observed indicators. In this perspective, latent variable models have been assuming a prominent role in the social science literature for the study of the interrelationships among phenomena. However, traditional estimation methods are prone to different limitations, as stringent distributional assumptions, improper solutions, and factor score indeterminacy for Covariance Structure Analysis and the lack of a global optimization procedure for the Partial Least Squares approach. To avoid these limitations, new approaches to structural equation modelling, based on Component Analysis, which estimates latent variables as exact linear combinations of observed variables minimizing a single criterion, were proposed in literature. However, these methods are limited to model particular types of relationship among sets of variables. In this paper, we propose a class of models in such a way that it enables to specify and fit a variety of relationships among latent variables and endogenous indicators. Specifically, we extend this new class of models to allow for covariate effects on the endogenous indicators. Finally, an application aimed to measure, in a realistic structural model, the causal impact of formal Human capital (HC), accumulated during Higher education, on the initial earnings for University of Milan (Italy) graduates is illustrated.

Suggested Citation

  • Pietro Giorgio Lovaglio & Giuseppe Folloni, 2011. "The estimation of Human Capital in structural models with flexible specification," Working Papers 11, AlmaLaurea Inter-University Consortium.
  • Handle: RePEc:laa:wpaper:11
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    References listed on IDEAS

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    7. Camilo Dagum & Giorgio Vittadini & Pietro Giorgio Lovaglio, 2007. "Formative Indicators and Effects of a Causal Model for Household Human Capital with Application," Econometric Reviews, Taylor & Francis Journals, vol. 26(5), pages 579-596.
    8. Izenman, Alan Julian, 1975. "Reduced-rank regression for the multivariate linear model," Journal of Multivariate Analysis, Elsevier, vol. 5(2), pages 248-264, June.
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