Showing papers on "Human capital published in 1996"

Where Has All the Education Gone

Abstract: How to explain the surprising finding that more education did not lead to faster economic growth? Cross-national data on economic growth rates show that increases in educational capital resulting from improvements in the educational attainment of the labor force have had no positive impact on the growth rate of output per worker. In fact, contends Pritchett, the estimated impact of growth of human capital on conventional nonregression growth accounting measures of total factor productivity is large, strongly significant, and negative. Needless to say, this at least appears to contradict the current conventional wisdom in development circles about education's importance for growth. After establishing that this negative result about the education-growth linkage is robust, credible, and consistent with previous literature, Pritchett explores three possible explanations that reconcile the abundant evidence about wage gains from schooling for individuals with the lack of schooling impact on aggregate growth: - That schooling creates no human capital. Schooling may not actually raise cognitive skills or productivity but schooling may nevertheless raise the private wage because to employers it signals a positive characteristic like ambition or innate ability. - That the marginal returns to education are falling rapidly where demand for educated labor is stagnant. Expanding the supply of educated labor where there is stagnant demand for it causes the rate of return to education to fall rapidly, particularly where the sluggish demand is due to limited adoption of innovations. - That the institutional environments in many countries have been sufficiently perverse that the human capital accumulated has been applied to activities that served to reduce economic growth. In other words, possibly education does raise productivity, and there is demand for this more productive educated labor, but demand for educated labor comes from individually remunerative but socially wasteful or counterproductive activities - a bloated bureaucracy, for example, or overmanned state enterprises in countries where the government is the employer of last resort - so that while individuals' wages go up with education, output stagnates, or even falls. This paper - a product of the Poverty and Human Resources Division, Policy Research Department - is part of a larger effort in the department to investigate the determinants of economic growth.

Growth, Income Distribution, and Democracy: What the Data Say

Abstract: This paper investigates the relationship between income distribution, democratic institutions, and growth. It does so by addressing three main issues: the properties and reliability of the income distribution data, the robustness of the reduced form relationships between income distribution and growth estimated so far, and the specific channels through which income distribution affects growth. The main conclusion in this regard is that there is strong empirical support for two types of explanations, linking income distribution to sociopolitical instability and to the education/fertility decision. A third channel, based on the interplay of borrowing constraints and investment in human capital, also seems to receive some support by the data, although it is probably the hardest to test with the existing data. By contrast, there appears to be less empirical support for explanations based on the effects of income distribution on fiscal policy.

Understanding Risk and Return

Abstract: This paper uses an equilibrium multifactor model to interpret the cross-sectional pattern of postwar U.S. stock and bond returns. Priced factors include the return on a stock index, revisions in forecasts of future stock returns (to capture intertemporal hedging effects), and revisions in forecasts of future labor income growth (proxies for the return on human capital). Aggregate stock market risk is the main factor determining excess returns; but in the presence of human capital or stock market mean reversion, the coefficient of relative risk aversion is much higher than the price of stock market risk.

Improving labor productivity: human resource management policies do matter

Abstract: Despite the consistency with which the theoretical and normative connections between human resource management practices and firm-level performance outcomes are made, empirical studies that link the two are sparse. This paper presents results from a study of 319 business units that addresses this gap. Hypotheses are derived from a resource-based perspective on strategy. Positive and significant effects on labor productivity are found for organizations that utilize more sophisticated human resource planning, recruitment, and selection strategies. These effects are particularly pronounced in the case of capital-intensive organizations.

Immigrant Self-Employment: The Family as Social Capital and the Value of Human Capital

Abstract: We examine how self-employment among Asian and Hispanic immigrants is affected by family composition and human capital/class resources. Because of collective interests and strong personal ties the family facilitates the pooling of labor power and financial resources. Enterprising immigrants draw on these resources when establishing and operating small businesses. Our findings also show the importance of human capital/class resources in accounting for immigrant self-employment. Although foreign-earned human capital is usually not highly valued in the host labor market immigrants successfully use this human capital to achieve business ownership. Interethnic variation in personal human capital and family composition accounts for a substantial portion of the observed interethnic variation in self-employment....The data are drawn from the 1980 five percent PUMS for greater New York City and Los Angeles.... (EXCERPT)

Technical Change and Human-Capital Returns and Investments: Evidence from the Green Revolution

Abstract: Panel and time-series data describing the green-revolution period in India are used to assess the effects of exogenous technical change on the returns to schooling, the effects of schooling on the profitability of technical change, and the effects of technical change and school availability on household schooling investment. The results indicate that the returns to (primary) schooling increased during a period of rapid technical progress, particularly in areas with the highest growth rates. Such increases induced private investment in schooling, net of changes in wealth, wages, and the availability of schools, and school expansion importantly increased levels of schooling. Copyright 1996 by American Economic Association.

A Theory of Persistent Income Inequality

Abstract: This paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Parents affect the conditional probability distribution of their children's income through the choice of a neighborhood in which to live. Neighborhood location affects children both through local public finance of education as well as through sociological effects. These forces combine to create incentives for wealthier families to segregate themselves into economically homogeneous neighborhoods. Economic stratification combines with strong neighborhoodwide feedback effects to transmit economic status across generations, leading to persistent income inequality.

Are Business Startups Debt-Rationed?

Abstract: Using a large random sample of U.K. start-ups and a rich data set, the paper demonstrates that human capital is the 'true' determinant of survival and that the correlation between financial capital and survival is spurious. Provision of finance is demand-driven, with banks supplying funds elastically and business requests governing take-up. Firms self-select for funds on the basis of the human capital endowments of the proprietors with 'better' businesses more likely to borrow. A reason why others have seemingly identified start-up debt gaps may be the failure to test a sufficiently rich empirical model. Copyright 1996 by Royal Economic Society.

Human Capital Theory: Foundations of a Field of Inquiry

Abstract: This review of human capital theory begins in 1776 and ends in the 1960s, when the theoretical and empirical foundations of the field were articulated and established. The review is organized to provide a general reference to human capital theory, its historical development, and its major methodological approaches. While human capital research has not been limited to education, it usually includes empirical measures of education and produces results that affect educators and education policy. Review of the foundation studies that were conceived by Nobel prize laureates and historically prominent economists supports the position that educators should draw their own informed conclusions and define the agenda of future human capital research.

A Microfoundation for Social Increasing Returns in Human Capital Accumulation

Abstract: This paper proposes a microfoundation for social increasing returns in human capital accumulation. The underlying mechanism is a pecuniary externality due to the interaction of ex ante investments and costly bilateral search in the labor market. It is shown that the equilibrium rate of return on the human capital of a worker is increasing in the average human capital of the workforce even though all the production functions in the economy exhibit constant returns to scale, there are no technological externalities, and all workers are competing for the same jobs.

Technological Progress, Mobility, and Economic Growth

Abstract: This paper analyses the relationship between technological progress, intergenerational earnings mobility, and economic growth. The analysis demonstrates that the interplay between technological progress and two components that determine individual earnings – parental human capital and individual ability – governs mobility, technological progress, and economic growth. In periods of major technological inventions the ability effect is the dominating factor. The decline in the relative importance of initial parental conditions (i.e. the driving force behind the persistence of inequality) enhances mobility and generates a larger concentration of high-ability individuals in technologically-advanced sectors, stimulating further technological progress and economic growth. Once existing technologies become more accessible, however, mobility is diminished and inequality becomes more persistent. The reduction in the concentration of human capital in technologically-advanced sectors diminishes the likelihood of major technological breakthroughs and slows down future economic growth. User friendliness, therefore, becomes unfriendly to future economic growth.

The sources of economic growth

Abstract: Technological advance is the key driving force behind economic growth, argues Richard Nelson. Investments in physical and human capital contribute to growth largely as handmaidens to technological advance. Technological advance needs to be understood as an evolutionary process, depending much more on ex post selection and learning than on ex ante calculation. That is why it proceeds much more rapidly under conditions of competition than under monopoly or oligopoly. Nelson also argues that an adequate theory of economic growth must incorporate institutional change explicitly. Drawing on a deep knowledge of economic and technological history as well as the tools of economic analysis, Nelson exposes the intimate connections among government policies, science-based universities, and the growth of technology. He compares national innovation systems, and explores both the rise of the United States as the world’s premier technological power during the first two-thirds of the twentieth century and the diminishing of that lead as other countries have largely caught up. Lucid, wide-ranging, and accessible, the book examines the secrets of economic growth and why the U.S. economy has been anemic since the early 1970s.

The low-skill, low-quality trap: strategic complementarities between human capital and R & D

Abstract: This paper investigates the relationship between investments in human capital and R&D in a model of endogenous growth. Both forms of investment exhibit pecuniary externalities and are, as a result, strategic complements. Multiple equilibria may occur for intermediate parameter values and the present analysis may be seen as providing a theoretical rationalization for the idea that an economy may become trapped in a 'low-skills' equilibrium, characterized by a poorly trained workforce and low product quality. In the presence of multiple equilibria, there may be a welfare-improving role for government policy in coordinating expectations. Copyright 1996 by Royal Economic Society.

How Does Privatization Work? Evidence from the Russian Shops

Abstract: We use a survey of 452 Russian shops, most of which were privatized between 1992 and 1993, to measure the importance of alternative channels through which privatization promotes restructuring. Restructuring is measured as major renovation, a change in suppliers, an increase in hours stores stay open, and layoffs. There is strong evidence that the presence of new owners and new managers raises the likelihood of restructuring. In contrast, there is no evidence that equity incentives of old managers promote restructuring. The evidence points to the critical role new human capital plays in economic transformation.

Taxation and economic growth

Abstract: Tax reforms are sometimes touted as having strong macroeconomic growth effects. Using three approaches, we consider the impact of a major tax reform—a 5 percentage point cut in marginal tax rates—o...

The Future of Capitalism : How Today's Economic Forces Shape Tomorrow's World

Abstract: "Survival of the fittest" capitalism stands alone and apparently trimphant. Communism has collapsed and the social welfare state is breaking down everywhere. But technology and ideology are shaking the foundations of 21st-century capitalism. Technology is making skills and knowledge the only sources of sustainable strategic advantage. Abetted by the electronic media, ideology is moving toward the consumer's instant gratification. A new capitalism must emerge, one in which the ownership of skills ("man-made brainpower") instead of physical capital is the key strategic asset. Economic success will depend upon our willingness and ability to make long-term social investments in skills, education, knowledge and infrastructure. The intrinsic problems of capitalism (instability, rising inequality) are still waiting to be solved, but so are a new set of problems - and opportunities - that flow from capitalism's growing dependence upon human capital and man-made brainpower industries. In this era of massive economic and political change as five great "tectonic plates" of capitalism reshape the future, those who win will learn to play a new game with new rules requiring new strategies. Tomorrow's winners will have very different characteristics than today's winners. When technology and ideology start moving apart, the only question is when will the "big one" (the earthquake that rocks the system) occur? Paradoxically at a time when capitalism finds itself at the "end of history" with no social and political competitors, it will have to undergo a profound metamorphosis. This work analyzes the future of capitalism, and charts a course for surviving and winning in the years ahead. Lester Thurow is the author of "Head to Head" and "The Zero-Sum Society".

Human Capital Pricing Equations with an Application to Estimating the Effect of Schooling Quality on Earnings

Abstract: This paper formulates and estimates alternative models for the pricing of labor services. We present economic models that rationalize empirical specifications in the literature and we offer evidence on the validity of those specifications. Widely used efficiency units models of labor services are inconsistent with evidence from the U.S. labor market. A model of heterogeneous skills provides a more accurate description of earnings data. We present evidence that the pursuit of comparative advantage and selective migration are important features of the U.S. labor market. When these features are included in the model, the only support for an effect of schooling quality on earnings is through the return to college education. Three interactions are empirically important in explaining log wage equations: (A) between schooling quality and education, (B) between regional labor market shocks and education and (C) between region-of-residence and regionof-birth. Because of this third interaction, which can arise from comparative advantage in the labor market, no unique quality effect on returns to education can be defined independently of the market in which it is used.

Measuring Investment in Education

Abstract: Historic debates about the measurement of capital are even more complicated in the case of education and human capital. As extensive research demonstrates, education resources are not consistently related to student performance in existing elementary and secondary schools. This inefficiency in public schools implies that spending and resource measures do not accurately capture variations in school quality. This finding then has clear implications for both education policy and economic research. Because school inputs are poor policy instruments, an alternative policy focus that appears much more productive is performance incentives related to student achievement.

College Choice and Wages: Estimates Using Data on Female Twins

Abstract: The authors assess the impact of college quality on women's earnings and the influence of family and individual endowments on college choice using new data from a survey of identical and nonidentical twins born in Minnesota. The estimates reject models that ignore school choice. The statistically preferred estimates suggest that Ph.D.-granting, private universities with well-paid senior faculty and smaller enrollments produce students who have significantly higher earnings later in life. Both the quantity of schooling and the quality of schooling resources are allocated to higher-endowed individuals, which exacerbates preexisting inequality in human capital and biases conventional estimates of school quality effects. Copyright 1996 by MIT Press.

The Economics of Poverty Traps Part One: Complete Markets

Abstract: This paper lists theoretical reasons why neoclassical models of one-sector growth imply that nations with identical economic structures need not converge to the same steady state or balanced growth path, and outlines the empirical significance and policy implications of conditional nonconvergence. We survey poverty traps in both convex and nonconvex economies with complete market structures. Among the potential causes of traps are subsistence consumption; distorted international trade in intermediate inputs; demographic transitions when fertility is endogenous; technological complementarities in the production of consumption goods, financial intermediation services, manufactures, or human capital; coordination failures among voters; various restrictions on borrowing; indivisibilities in human capital formation or child rearing; and monopolistic competition in product or factor markets.

An Empirical Analysis of Risk Aversion and Income Growth

Abstract: Risk aversion enters many theoretical models of human capital investment, but attitudes toward risk have not been incorporated in empirical models of human capital investment. This article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion. Using data from the Survey of Consumer Finances, I find that wage growth is positively correlated with preferences for risk taking. More-educated individuals are also more likely to be risk takers, thus risk taking explains a portion of the returns to education.

Human Capital or Cultural Capital?: Ethnicity and Poverty Groups in an Urban School District (Social Institutions and Social Change Series)

Abstract: This study seeks to reorient our understanding of the early educational determinants of social stratification outcomes. It focuses on the process and consequences of unequal cognitive skill attainment for ethnic and poverty groups within our nation's cities. It draws, theoretically, on the notion that experiences at home and school create a feedback loop by which the "cultural capital" of the students (their toolkit of skills, habits, and styles with which they construct strategies of action) evolves over time and largely determines differential success in mastering the teacher-assigned homework.

The Effects of Family Characteristics on the Return to Education

Abstract: In this paper, the authors examine the role of parental education in the human capital production function by estimating the effects of parental education on the education profile of wages. The analysis uses sibling pairs from the Panel Study of Income Dynamics and the National Longitudinal Surveys of Labor Market Experience of Young Men and Young Women. The authors obtained mixed evidence on whether parental education raises the return to education. Copyright 1996 by MIT Press.

The Market Transition Debate: Toward a Synthesis?

Abstract: In his seminal 1989 article, "A Theory of Market Transition," Victor Nee offered a new theory of social inequality and applied it to the study of the problem of transition from state socialist redistributive economy to market capitalism. Nee claimed that the emergence of markets in state socialist redistributive economies had unexpected consequences. The most privileged stratum or class of state socialism, the redistributors, lost some of their privilege, while those at the bottom of the state socialist hierarchy, the "direct producers," benefited (for earlier formulations see Szelenyi and Konrad [1969], Szelenyi [1978], and Whyte [1984]). As a result, inequality, as measured by income or access to scarce goods, was reduced. Nee's theory identified the mechanisms by which markets generated equality under redistributive systems: if wages are not administratively set, but established by transactive relations, then producers are likely to have more power (market power); if markets operate, then human capital is likely to be rewarded more while political loyalty is likely to matter less (market incentive); if there are markets in a redistributive economy, then entrepreneurship becomes an alternative avenue of socioeconomic mobility (market opportunity; Nee 1989). Data collected in 1985 in rural China offered support to the theory of market transition. Between 1977 and 1985 overall income inequalities in China declined: the income gap between urban residents and farmers shrank; the income gap in the countryside between peasants and cadres also narrowed. The decline of inequality arguably was the result of deregulation of state policies in agriculture. After 1977, Chinese peasants received land, their production targets were less strictly regulated by planners, and they were allowed to bring their produce to urban markets. As

Incentives and careers in organizations

Abstract: An outsider might be surprised to learn that modern labor economics has little to say about activities inside firms. After all, is not work (i.e., what workers do once they go through a firm's doors) one of the field's most natural areas of inquiry? Let's take stock. Several research areas in labor economics end precisely when an employment relationship begins: unemployment duration and labor-force participation are examples, and even labor demand typically focuses on how many workers should be hired rather than on what the firm should then do with them. Other research areas in labor economics reduce the employment relationship to a wage, or at most a wage profile: on-the-job search, labor supply, and human-capital models of earnings, for example. Even research on the return to seniority more often focuses on econometric issues than on what actually happens during an employment relationship; similarly, research on training more often focuses on pre-employment government-sponsored programs than on skill development in firms. Simply put, modern labor economics contains little work on work. The situation may be changing. In this chapter I describe theory and evidence on two aspects of some employment relationships: incentive pay and careers in organizations. Most of the theory I describe is recent, emphasizing games and contracts rather than the workhorse theories of labor economics in the 1970s and 1980s, human capital and search. Much of the evidence is also new, at least in the sense of not having been part of the published discourse in labor economics over the last few decades. This same evidence is also old, however, both in the sense of sometimes referring to events long past (sharecropping in 1910 or a machine shop in Chicago around 1950, for example) and in the sense of sometimes being fairly well-known outside labor economics.