On the Assignment of Workers to Occupations and the Human Capital of Countries

A worker's human capital determines his absolute and relative productivity across the different occupations. For a country as a whole, the cross-section distribution of workers determines the country's equilibrium assignment of workers to jobs and the resulting aggregate human capital. We consider a tractable general equilibrium Roy model and use it to infer, from observed data across countries and time: (i) the absolute and comparative advantage components of the different workers, (ii) the occupation intensity of a country's human capital, and (iii) the distortions in the allocation of workers to jobs. Contrary to the standard measure that implicitly assumes that human capital entails only absolute advantage, we show that the data implies that: (a) human capital has a strong comparative advantage component; (b) a higher distribution in the human capital distribution of workers lead to skill-upgrading across occupations and to a higher skill intensity of the overall human capital of countries; (c) cross-country differences in aggregate human capital explains a much larger fraction of the cross-country income differences from the standard model. We also find substantial costs from the distortions in the allocation of workers to jobs, especially for the less developed countries. Finally, we use the model to assess whether a country should direct its efforts to enhance the skills at the higher- or lower-end of the skill distribution.