Investment in Skills, Managerial Quality, and Economic Development

Abstract

I document that for a group of 38 countries ranging from low to high income: (1) the share of skilled managers is higher in richer countries, (2) the relative income of managers to non-managers is lower in richer countries, and (3) the relative income of skilled to unskilled individuals is lower in richer countries. In addition, the share of managers is lower in richer countries while the mean plant size is larger in richer countries. I explore these facts through the lens of a general equilibrium model of investment in skills and occupational choice. Countries differ in productivity level in production and the level of size-dependent distortions. I find that exogenous productivity differences alone can produce the above facts qualitatively, but size-dependent distortions are needed to account for these facts quantitatively and the output elasticity of productivity is 2.6.