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Technological Change in the Production of Human Capital: Implications for Human Capital Stocks, Wages and Skill Differentials

Author

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  • Chris Robinson
  • Audra J. Bowlus

Abstract

In this paper we explicitly model and estimate an education system that produces human capital. An important innovation is that technological change in the production functions associated with any level of education is permitted and the rate of change may be different at different levels and for different countries. Technological change is taken for granted for almost all other production functions, yet in most discussions of human capital including the current debate over widening skill differentials, it plays no role. It is rarely even discussed. The approach taken here is in the same spirit as recent work on estimating a true price series for computers based on an underlying constant standard of computations per second. An important part of the work is the choice of this standard for human capital. Individuals take the education system as given and choose paths of human capital investment to maximize lifetime wealth. The endogenous nature of human capital investment makes the human capital associated with any observed characteristic, such as years of schooling, reflective of selection effects as well as technological change effects. In this framework, an efficiency units model of human capital, amended to include technical change as well as selection, is consistent with the basic pattern of wages in the United States in the last three decades. New series on the human capital input (efficiency units) and the price of this input for 1976-2001 are computed, based on a cohort analysis that incorporates technical change and selection. The price series show s a substantial secular decline to the early 1990's followed by an increase to 2001. The efficiency units series include a breakdown by a variety of characteristics, including observed years of schooling. Together with the price series this determines a time path for any wage differential by any observed measures such as college attendance. A natural consequence of this framework is that changes in differentials such as that between college and high school will be cohort determined without reference to relative supplies. This is consistent with the recent evidence on this widening differential - that it is largely confined to recent cohorts.

Suggested Citation

  • Chris Robinson & Audra J. Bowlus, 2004. "Technological Change in the Production of Human Capital: Implications for Human Capital Stocks, Wages and Skill Differentials," 2004 Meeting Papers 218, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:218
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    References listed on IDEAS

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    1. Richard Blundell & Howard Reed & Thomas M. Stoker, 2003. "Interpreting Aggregate Wage Growth: The Role of Labor Market Participation," American Economic Review, American Economic Association, vol. 93(4), pages 1114-1131, September.
    2. Hanushek, Eric A & Rivkin, Steven G & Taylor, Lori L, 1996. "Aggregation and the Estimated Effects of School Resources," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 611-627, November.
    3. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 705-746.
    4. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    5. Card, David & Lemieux, Thomas, 1996. "Wage dispersion, returns to skill, and black-white wage differentials," Journal of Econometrics, Elsevier, vol. 74(2), pages 319-361, October.
    6. Audra Bowlus & Haoming Liu & Chris Robinson, 2002. "Business Cycle Models, Aggregation, and Real Wage Cyclicality," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 308-335, Part.
    7. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc.
    8. Jaeger, David A, 1997. "Reconciling the Old and New Census Bureau Education Questions: Recommendations for Researchers," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 300-309, July.
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    11. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-689, August.
    12. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    13. Lorraine Dearden & Javier Ferri & Costas Meghir, 2002. "The Effect Of School Quality On Educational Attainment And Wages," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 1-20, February.
    14. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-1177, September.
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    Cited by:

    1. Andren, Daniela & Earle, John S. & Sapatoru, Dana, 2005. "The wage effects of schooling under socialism and in transition: Evidence from Romania, 1950-2000," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 300-323, June.
    2. Audra J. Bowlus & Chris Robinson, 2005. "The Contribution of Post-Secondary Education to Human Capital Stocks in Canada and the United States," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20051, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    3. Audra J. Bowlus & Haoming Liu & Chris Robinson, 2005. "Human Capital, Productivity and Growth," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20052, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).

    More about this item

    Keywords

    human capital; education; skill differentials;

    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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