Capital deepening

About: Capital deepening is a research topic. Over the lifetime, 5203 publications have been published within this topic receiving 230297 citations.

Mobility and Stability: The Dynamics of Job Change in Labor Markets

Abstract: Three central facts describe inter-firm worker mobility in modern labor markets: 1) long-term employment relationships are common, 2) most new jobs end early, and 3) the probability of a job ending declines with tenure. Models based on firm-specific capital provide a parsimonious explanation for these facts, but it also appears that worker heterogeneity in mobility rates can account for much of what we observe in these data. I investigate tests of the specific capital model and consider whether these tests are successful in distinguishing the specific capital model from a model based on heterogeneity. One approach uses longitudinal data with detailed mobility histories of workers. These analyses suggest that both heterogeneity and specific capital (implying true duration dependence in the hazard of job ending) appear to be significant factors in accounting for mobility patterns. A second approach is through estimation of the return to tenure in earnings functions. This is found to have several weaknesses including endogeneity of tenure and the lack of tight theoretical links between tenure and accumulated specific capital and between productivity and wages. A third approach is to use of data on the earnings experience of displaced workers. Several tests are derived based on these data, but there is generally an alternative heterogeneity-based explanation that makes interpretation difficult. Nonetheless, firms appear willing to pay to encourage long-term employment relationships, and they may do so because it is efficient to invest in their workforce. On this basis, I conclude that, while deriving convincing direct evidence for the specific capital model of mobility is difficult, it appears that specific capital is a useful construct for understanding worker mobility and wage dynamics.

Does employment protection reduce productivity? evidence from us states*

Abstract: Theory predicts that mandated employment protection may reduce productivity by distorting production choices. We use the adoption of wrongful-discharge protection by state courts in the US from 1970 to 1999 to evaluate the empirical link between dismissal costs and productivity. Drawing on establishment-level data from the Census Bureau, our estimates suggest that wrongful-discharge protection reduces employment flows and firm entry rates. Moreover, plants engage in capital deepening and experience a decline in total factor productivity, indicative of altered production techniques. Evidence of strong contemporaneous growth in employment, however, leads us to view our findings as suggestive but tentative. An extensive literature explores the impact of dismissal costs - also frequently called firing costs or employment protection - on the operation of labour markets. Beginning with the seminal work of Lazear (1990), much research has focused on assessing how dismissal costs affect employment levels. Theory suggests, however, that dismissal costs may have ambiguous effects on employment levels. Dismissal costs act as a tax on firing, which reduces dismissals but also reduces hiring. The net effect of these offsetting factors is ambiguous, at least in the short run. It is perhaps not surprising therefore that the empirical literature has found widely varying effects of dismissal costs on employment levels.

The Production function and the Theory of Capital

Abstract: The dominance in neo-classical economic teaching of the concept of a production function, in which the relative prices of the factors of production are exhibited as a function of the ratio in which they are employed in a given state of technical knowledge, has had an enervating effect upon the development of the subject, for by concentrating upon the question of the proportions of factors it has distracted attention from the more difficult but more rewarding questions of the influences governing the supplies of the factors and of the causes and consequences of changes in technical knowledge. Moreover, the production function has been a powerful instrument of miseducation. The student of economic theory is taught to write 0 f f (L, C) where L is a quantity of labour, C a quantity of capital and 0 a rate of output of commodities.' He is instructed to assume all workers alike, and to measure L in man-hours of labour; he is told something about the index-number problem involved in choosing a unit of output ; and then he is hurried on to the next question, in the hope that he will forget to ask in what units C is measured. Before ever he does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next. The question is certainly not an easy one to answer. The capital in existence at any moment may be treated simply as \" part of the environment in which labour works.\"2 We then have a production function in terms of labour alone. This is the right procedure for the short period within which the supply of concrete capital goods does not alter, but outside the short period it is a very weak line to take, for it means that we cannot distinguish a change in the stock of capital (which can be made over the long run by accumulation) from a change in the weather (an act of God). We may look upon a stock of capital as the specific list of all the goods in existence at any moment (including work-in-progress in the pipe lines of production). But this again is of no use outside the strict bounds of the short period, for any change in the ratio of capital to labour involves a re-organisation of methods of production and requires a change in the shapes, sizes and specifications of many or all the goods appearing in the original list. 3 As soon as we leave the short period, however, a host of difficulties appear. Should capital be valued according to its future earning power or its past costs ? When we know the future expected rate of output associated with a certain capital good, and expected future prices and costs, then, if we are given a rate of interest, we can value the capital good as a discounted stream of future profit which it will earn. But to do so, we have to begin by taking the rate of interest as given, whereas the main purpose of the production function is to show how wages and the rate of interest (regarded as the wages of capital) are determined by technical conditions and the factor ratio.

Evaluating the impacts of human capital stocks and accumulation on economic growth: some new evidence.

Abstract: Various hypotheses have been put forward in recent years concerning the contribution of human capital to economic growth. This paper argues that school enrolment rates — by far the most commonly used human capital measure in growth regressions attempting to test these hypotheses — conflate human capital stock and accumulation effects and lead to misinterpretations of the role of labour force growth. An alternative educationrelated human capital measure is constructed which is capable of distinguishing between stocks and flows. Applying this measure to samples of developed and less developed countries during the 1960–85 period suggests not only that there are important growth effects associated both with ‘initial’ stocks of, and subsequent growth in, human capital, but also that this new measure out-performs the simple school enrolment rates used in previous analyses.

Sources of China's Economic Growth, 1952-1999: Incorporating Human Capital Accumulation

Abstract: July 2001 Both productivity growth and factor accumulation figured significantly in China's remarkable growth performance between 1978 and 1999, a period of reform. Considering China's need for an innovation-based knowledge economy, the recent declining rate of human capital accumulation - education - is a cause for concern. China's performance in economic growth and poverty reduction has been remarkable. There is an ongoing debate about whether this growth is mainly driven by productivity or factor accumulation. But few past studies had incorporated information on China's human capital stock, and thus contained an omission bias. Wang and Yao construct a measure of China's human capital stock from 1952 to 1999 and, using a simple growth accounting exercise, incorporate it in their analysis of the sources of growth during the pre-reform (1952-1977) and the reform period (1978-1999). They find that the accumulation of human capital in China (as measured by the average years of schooling for the population aged 15 to 64) was quite rapid and contributed significantly to growth and welfare. After incorporating human capital, they also find that the growth of total factor productivity still plays a positive and significant role during the reform period. In contrast, productivity growth was negative in the pre-reform period. The results are robust to changes in labor shares in GDP. The recent declining rate of human capital accumulation is a cause for concern, if China is to sustain its improvements in growth and welfare in the coming decade. Funding for basic education is unevenly distributed and insufficient in some poor regions. This paper - a product of the Economic Policy and Poverty Reduction Division, World Bank Institute - is part of a larger effort in the institute to examine country experience on globalization and growth. The authors may be contacted at ywang2@worldbank.org or yyao@imf.org.