Schooling and productivity growth: evidence from a dual growth accounting application to U.S. states

Abstract

This paper exploits the dual growth accounting framework to determine the effect of schooling on total-factor productivity (TFP) growth for U.S. states over 1980–2010. The paper contributes to the literature by constructing TFP growth measures, in the process, both real wage growth and real user cost growth measures at the state level. The growth accounting exercise reveals that states display considerable heterogeneity in TFP growth with both real wage growth and real user cost growth equally contributing to it. While our econometric estimates reveal significant TFP growth effects associated with college education, they are considerably lower in magnitude when compared to the earlier studies. Productivity growth effects associated with high school education remain insignificant. Our empirical findings are further validated by the use of instrumental variable estimation to address the endogeneity of the schooling variables and are also robust to the inclusion of a rich set of control variables, alternative TFP growth measures as well as to the tests to draw robust inferences in the presence of weak instruments.