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The Human Capital Production Function: New Estimates and Implications for Labor Supply and Taxes

Author

Listed:
  • Han Gao
  • Michael P. Keane
  • Kaja Kierulf
  • Alan Woodland

Abstract

This paper estimates a learning-by-doing human-capital production function in which hours affect both current productivity and future human capital. We show that the standard Ben-Porath specification is weakly identified: its objective function is nearly flat along a ridge in parameter space, undermining conventional inference. We develop a flexible sieve alternative that is well-identified, and estimate a concave hours technology using PSID data. Embedding this technology in a life-cycle model, we find very small prime-age labor-supply responses to temporary wage shocks. Despite these low elasticities, optimal labor-income taxes are flat because they distort both current labor supply and future human-capital accumulation.

Suggested Citation

  • Han Gao & Michael P. Keane & Kaja Kierulf & Alan Woodland, 2026. "The Human Capital Production Function: New Estimates and Implications for Labor Supply and Taxes," NBER Working Papers 35238, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35238
    Note: LS PE
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    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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