Human Capital Depreciation Research Articles

A Year Older, A Year Wiser (and Farther from Frontier): Invention Rents and Human Capital Depreciation

Abstract We look at how the arrival of an invention affects wage returns and the probability of moving out of employment for white- and blue-collar co-workers of the inventor. First results suggest that older workers are hurt by the arrival of an invention. This negative effect disappears when we control for education and, in particular, for the time since obtaining the last formal degree, that is, distance to human capital frontier. If anything, this effect is slightly higher for non-STEM than STEM-educated co-workers. This result suggests that retraining programs could be helpful in making the process of creative destruction and economic growth more inclusive.

Optimal taxation in the life cycle with human capital investment

This paper studies optimal taxes in a lifecycle model with unverifiable human capital investment inseparable from regular consumption. The planner faces asymmetric information regarding agents’ exogenous abilities and endogenous human capital. Agents deviate in two ways: misreporting ability and mis-investing in human capital. We characterize the distortions in a model with i.i.d. shocks and full human capital depreciation. Distortions are characterized by capital wedges that are positive over the life cycle, labor wedges that are negative early and positive later in the life cycle, and net human capital wedges that are positive in the life cycle. These wedges serve as mechanisms to eliminate the distortion to consumption due to inseparability from education expenditure. Calibrate to U.S. data, we show numerically that these results apply in a richer model with persistent shocks and non-full human capital depreciation. Simulation suggests that average capital wedges are positive in all working periods, with progressive capital wedges in contemporary skills, average labor wedges are negative in early and positive in later periods, with hump-shape in skills and nonzero at the top and the bottom of the skill distribution, and net human capital wedges are positive and regressive in skills, indicating that human capital subsidies are in favor of the high skilled.

Cohabitation vs. Marriage: Mating Strategies by Education in The USA

Abstract In this paper, I analyze the determinants of cohabitation, marriage, and divorce in the USA. I first document that college graduates are more likely to marry, and less likely to cohabit and divorce, than non-college educated individuals. To account for these facts within a unified framework, I build and estimate a life-cycle model of partnership formation and dissolution where income processes differ by gender and education. I find that the main driver of education-based differences in mating strategies is that the gender wage gap is larger among college graduates. Since divorce is more costly than ending a cohabitation, marriages tend to be more stable and therefore offer women more protection from human capital depreciation during non-employment. Consequently, marriage is a more effective means of enforcing household specialization. Since college graduates have more room for household specialization, they are more likely to choose marriage. The variance of income shocks, which affects the demand for consumption insurance, is larger among college graduates. Even if the variance of income shocks could potentially explain partnership choices, simulations suggest a small role of income volatility.

Balanced growth and degrowth with human capital

In a simple discrete-time version of Lucas (1988) we find that the Balanced Growth Path (BGP) is always the unique optimal planner’s solution: with linear or strictly concave production functions, with unbounded utility functions, with or without human capital depreciation. When the ”speed” of human capital accumulation is high, the optimal working time is constant and below its upper bound. Capital grows at a constant factor, but degrowth is also possible when this factor is less one (under positive capital depreciation). When this speed is low, optimal working time is at its boundary and capital declines at its depreciation factor (degrowth).

Do wages grow with experience? Deciphering the Russian puzzle

In all available cross-sectional data, the trajectory of the observed wage–experience profile of Russian workers is flat, peaks early, and declines sharply afterwards. This shape looks puzzling since it differs starkly from that observed in both developed and developing countries. We show that a proper interpretation of the wage–experience profile is hindered by the age-period-cohort problem, when the effects of time, cohort, and experience on the wage growth are mixed. Our study uses survey data from Russia covering the years 2000–2019. Relying on human capital theory, we disentangle the experience, period and cohort effects. With certain assumptions concerning human capital depreciation due to aging, our results show that Russian wages do grow monotonically with experience. However, this growth after mid-career is offset by the cohort effect that proceeds in the opposite direction, thus reflecting massive obsolescence of the human capital of workers from older cohorts. Meanwhile, the time effect mirrors the general GDP path as well as all booms and busts over the period.

Do pension benefits accelerate cognitive decline in late adulthood? Evidence from rural China

Economists have mainly focused on human capital accumulation rather than on the causes and consequences of human capital depreciation in late adulthood. To investigate how human capital depreciates over the life cycle, we examine how a newly introduced pension program, the National Rural Pension Scheme, affects cognitive performance in rural China. We find significant adverse effects of access to pension benefits on cognitive functioning among the elderly. We detect the most substantial impact of the program on delayed recall, a cognition measure linked to the onset of dementia. In terms of mechanisms, cognitive deterioration in late adulthood is mediated by a substantial reduction in social engagement, volunteering, and activities fostering mental acuity.

Human Capital Depreciation and Returns to Experience

Human capital can depreciate if skills are unused. But estimating human capital depreciation is challenging, as worker skills are difficult to measure and less productive workers are more likely to spend time in nonemployment. We overcome these challenges with new administrative data on teachers’ assignments and their students’ outcomes, and quasi-random variation from the teacher assignment process in Greece. We find significant losses to output, as a one-year increase in time without formal employment lowers students’ test scores by 0.05 standard deviations. Using a simple production model, we estimate a skill depreciation rate of 4.3 percent and experience returns of 6.8 percent. (JEL I21, J24, J45, J64, J65)

Does formal education for adults yield long-term multiplier effects or human capital depreciation?

Evaluations of adults in formal education (AE) are typically based on earnings measured 5–10 years after program enrollment. This paper uses propensity score matching to estimate returns up to 24 years after enrollment, and explore results for 15 cohorts of AE enrollees in Sweden 1994–2008 with at least a 10-year follow-up period. The results indicate substantially higher payoffs in absolute terms after the maximum length of follow-up compared with after 10 years. There is weak support that multiplier effects increase the percentage returns to AE over time, regardless of gender or whether the level of AE is college or high school.

Why do multi-child mothers suffer from employment exclusion? Analysis based on Chinese women’s evidence

PurposeThe purpose of this study is to examine the lasting effect of reproductive behaviour on career cycles for women. Women are the main bearers of population reproduction and family division of labour and a source of innovation for social and economic construction. However, few studies have used a comprehensive theoretical framework to research why female employees suffer from employment exclusion (EE) after multiple births. Therefore, structured equation modelling is used to test the degree of fit between the theoretical model and the data, to verify whether the hypotheses are valid and then make an appropriate interpretation of the theoretical model.Design/methodology/approachThe paper focusses on working mothers with two or more children and is based on questionnaire surveys, with 306 pieces of primary data obtained. This paper constructed the chained mediation model on the theoretical basis of the conservation of resources theory to examine and analyse the mechanisms of family–work conflict (FWC) and human capital depreciation (HCD) on EE.FindingsEmpirical results suggested that FWC has a significant positive impact on EE, while HCD does not. Chain mediation variables of family orientation (FO) and work engagement (WE) mediated the relationship between FWC and EE significantly, as well as between HCD and EE. Each antecedent positively predicted FO and, through FO, indirectly affected WE, then indirectly affected EE.Research limitations/implicationsIn the context of fertility policy adjustment and population structural imbalance, research from the perspective of females may better reflect reality and deepen understanding of EE to avoid it.Originality/valueFrist, relevant studies mostly study the factors affect in women’s equal employment from the macro levels, and focus on qualitative research, and lack sufficient empirical analysis. Second, this study locates the research object in the group of working mothers with two or more children. The focus of the research objects makes the research conclusions help to improve the work dilemma of special groups. Third, this study has opened up the “black box” between employees’ individual resources and work attitudes and behavior tendencies. Fourth, this study expands the possible outcome variables of FWC.

How Susceptible are Skills to Obsolescence? A Task-Based Perspective of Human Capital Depreciation

This article investigates the link between human capital depreciation and job tasks, with an emphasis on potential differences between education levels. Using data from the German Socio-Economic Panel, fixed effects panel regression is applied to estimate an extended Mincer equation based on Neumann and Weiss’s model. Human capital gained from higher education levels depreciates at a faster rate than other human capital. The depreciation rate is also higher for specific skills compared to general skills. Moreover, the productivity-enhancing value of education diminishes faster in jobs with a high share of non-routine interactive, non-routine manual, and routine cognitive tasks. These jobs are characterized by greater technology complementarity or more frequent changes in core-skill or technology-skill requirements. The presented results point to the urgency of elaborating combined labor market and educational and lifelong learning policies to counteract the depreciation of skills. Education should focus on equipping workers with more general skills in all education levels and adapt educational programs to take into account the rapid upgrade of production technologies and changing competency requirements.

A Year Older, a Year Wiser (and Farther from Frontier): Invention Rents and Human Capital Depreciation

A Year Older, a Year Wiser (and Farther from Frontier): Invention Rents and Human Capital Depreciation

Reaping the Rewards Later: How Education Improves Old-Age Cognition in South Africa

Cognitive abilities are fundamental for decision-making, and understanding the causes of human capital depreciation in old age is especially important in an aging society. Using a longitudinal labor survey that collects direct proxy measures of cognitive skills, we study the effect of educational attainment on cognitive performance in late adulthood in South Africa. We find robust evidence that an increase in a year of schooling improves memory performance and general cognition. We also find evidence of heterogeneous effects of educational attainment on cognitive performance. We explore the mechanisms through which education can affect cognitive performance. We show that a more supportive social environment, improved health habits, and reduced stress levels likely play a critical role in mediating the beneficial effects of educational attainment on cognition among the elderly.

Амортизация человеческого капитала как инструмент управления инновационным потенциалом

The theoretical and methodological foundations of depreciation of human capital are considered. Of particular relevance are the issues of its quantitative assessment in order to strengthen the country's innovation potential. The author's approach to calculating depreciation coefficients is presented. A methodology for assessing the level of depreciation of human capital, based on the pension system, is proposed and tested.

The persistent pay gap between Easterners and Westerners in Germany: A quarter‐century after reunification

AbstractA quarter of a century after Germany's reunification, Eastern Germans still earn substantially less than Western Germans. This paper revisits the German wage differential and isolates the effect of differing returns to human capital endowments, the possibility of a location effect, and human capital depreciation on the regional wage gap. While the endowment effect, location effect, and human capital depreciation jointly account for the wage differential between Easterners and Westerners living in the West, the same does not hold true for individuals settled in the East, where part of the wage gap remains unexplained.

Back to work: the effect of a long-term career interruption on subsequent wages in Switzerland

This paper measures the effect of a long-term career interruption on wages after re-employment. Using data from the Swiss Household Panel (SHP) and a fixed effects estimation method allows us to account for time-constant unobserved heterogeneity. We find a significant wage penalty of about 7% in the first year after re-employment if a worker takes up a job with the same characteristics as the job previously held. This wage penalty finally vanishes after 5 to 6 years. Conducting subsample analyses for men and women, we uncover underlying heterogeneity of the effect. Compared to women, men tend to suffer more from a long-term career interruption, both in terms of a higher wage penalty during the first year of re-employment and a larger subsequent recovery time. Our findings support the assumption that human capital depreciation is not the only reason for wage penalties after re-employment.

Decreasing Fertility, Economic Growth and the Intergenerational Wage Gap

Persistent low fertility rates lead to lower population growth rates and eventually also to decreasing population sizes in most industrialized countries. There are fears that this demographic development is associated with declines in per capita GDP and possibly also increasing inequality of the wage distribution. We investigate whether this is true in the context of neoclassical growth models, augmented with endogenous fertility decisions and endogenous educational decisions. Furthermore we allow for imperfect substitutability across workers of different age in the production process and learning by doing effects as well as human capital depreciation. In particular, we assess the intergenerational wage redistribution effects which follow after a demographic change to persistent low fertility rates.

Intensification of Human Capital Depreciation in the Russian Economy

Intensification of Human Capital Depreciation in the Russian Economy

Life-cycle welfare losses from rules-of-thumb asset allocation

How should workers invest over the life-cycle? Should they follow some typical prescriptions (“rules of thumb”) in personal finance implying higher equity investments when young? We show that the answer hinges on the risk of long-term unemployment spells, entailing permanent declines in workers’ future earnings prospects. Absent unemployment risk, extant prescriptions deliver portfolios that are close to optimal, implying negligible welfare losses. They instead lead to sizeable welfare losses (3%–9% of annual consumption) when the risk of human capital depreciation following long-term unemployment is considered and realistically calibrated to the U.S. labor market. These losses stem from excess risk taking when young investors face uncertainty about future labor and pension incomes. This result points to a new design for pension plans offered by long-term institutional investors.

Human Capital Depreciation

Human capital can depreciate if skills are unused. But estimating human capital depreciation is challenging, as worker skills are difficult to measure and less productive workers are more likely to spend time in non-employment. We overcome these challenges with new administrative data on teachers’ assignments and their students’ outcomes, and quasi- random variation from the teacher assignment process in Greece. We find significant losses to output, as a one-year increase in time without formal employment lowers students’ test scores by 0.09 standard deviations. Using a simple production model, we estimate a skill depreciation rate of 4.3% and experience returns of 6.8%.

The Cost of Human Capital Depreciation During Unemployment

Abstract This paper argues that human capital depreciation during unemployment generates an externality in job creation: firms ignore how their hiring decisions affect the skill composition of the future unemployment pool, and hence the output produced by new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. The reason is that the increase in the expected productivity of a new hire from next period’s unemployment pool caused by hiring an additional worker today, depends on the pool’s composition, which varies over the cycle.