Skill Accumulation Research Articles

FOSTERING EDUCATIONAL ENROLMENT THROUGH SUBSIDIES: THE ISSUE OF TIMING

SUMMARYThe purpose of this paper is to build a dynamic structural model of educational choices in which cognitive skills shape decisions. The model is estimated by maximum likelihood using cohort data where individuals are observed from birth to the middle of their working life. These data are unique in that they include cognitive skills test scores collected as early as age 7. We then investigate how alternative policies foster educational enrolment. In particular, we simulate the effect of two subsidies different in the timing of disbursement. The first consists of grants assigned directly to individuals aged between 16 and 18. The second is assigned to the parents earlier on, when the cohort is still in its childhood. The latter subsidy affects cognitive skills accumulation and in turn educational choices. Our results suggest that a grant fosters enrolment at the lowest cost but the parental income subsidy generates more welfare as measured by a class of social welfare functions. Nevertheless, these differences in costs and welfare are small. Overall, the results reinforce the view that government investments in cognitive skill accumulation during childhood are worthwhile. However, the results also indicate that such investments should be well structured to ensure a high return. Copyright © 2010 John Wiley & Sons, Ltd.

What a difference a day makes: Estimating daily learning gains during kindergarten and first grade using a natural experiment

Knowing whether time spent in formal schooling increases student achievement, and by how much, is important for policymakers interested in determining efficient use of resources. Using the ECLS-K, we exploit quasi-randomness in the timing of assessment dates to examine this question. Conservative estimates suggest a year of school results in gains of about one standard deviation above normal developmental gains in both reading and math test scores. The results are statistically significant and extremely robust to specification choice, supporting quasi-randomness of test dates. Estimates of skill accumulation due to formal schooling do not vary based on socioeconomic characteristics.

Intergenerational externalities, sustainability and welfare—The ambiguous effect of optimal policies on resource depletion

This paper studies an endogenous growth model with exhaustible resources, overlapping generations and human capital externalities. In the competitive equilibrium, selfish behavior and inefficient skills accumulation may prevent sustained growth. Implementing the utilitarian optimum likely induces sustainability via increased knowledge formation, but resource depletion may be faster or slower than under laissez-faire depending on the social discount rate. Heavy (modest) social discounting delays (anticipates) the achievement of net welfare gains for newborn agents and successors. The reason is that human capital accumulation magnifies the positive growth effects of policies that lower the rate of resource destruction, preserving the welfare of newborn agents. Resource-depleting policies, instead, hamper growth and reduce lifetime welfare of early-in-time generations—the first loser being the currently young.

Directed Technology Adoption, Human Capital Formation and World Income Distribution

This paper investigates the effects of skill bias technical change at the frontier on the evolution of output and human capital in the adopting countries. The framework introduces a novel feature by connecting the direction of technology adoption to a sequential process of skill accumulation, where the returns of advanced human capital depend on the quality of basic education. I find that moderate skill bias produces convergence in output per capita, while strong skill bias leads to convergence clubs. The predictions of the model are broadly consistent with the evolution of world income distribution and educational attainments during 1960-2000.

Return migration, human capital accumulation and the brain drain

In this paper we present a model that explains migrations as decisions that respond to where human capital can be acquired more efficiently, and where the return to human capital is highest. The basic framework is a dynamic Roy model in which a worker possesses two distinct skills that can be augmented by learning by doing. There are different implicit prices, in different countries and different rates of skill accumulation. Our analysis contributes to the literature on the selection of immigrants and return migrants by offering a richer framework that may help to accommodate selection of emigrants and return migrants that are not immediately compatible with the one-dimensional skill model. Our analysis also has implications for the debate on brain drain and brain gain. In the two skills model presented here, return migration can lead to a mitigation of the brain drain, or even the creation of a “brain gain”, where those who return bring the home country augmented local skills.

Social Interactions and Segregation in Skill Accumulation

Social Interactions and Segregation in Skill Accumulation

Trade Policy and Gender – Unfolding the Links

Globalization and trade liberalization bring complex and often contradictory effects on women’s access to employment, livelihood and income. In some cases, they generate employment and entrepreneurial opportunities for women; in others, they create burdens by disrupting markets in which women operate. Women’s education and skill accumulation seem to be the most important factors determining the impact of trade on women’s economic and social empowerment. Trade policies clearly have discrete impacts on women, yet they have long been gender-blind. Although mainstreaming gender in trade policy is a more recent endeavour, there is a quite large experience in mainstreaming other issues in trade policy. The lessons learned through these experiences may prove useful when mainstreaming gender in trade policy.

The Distinction between Dictatorial and Incentive Policy Interventions and its Implication for IV Estimation

We investigate if, and under which conditions, the distinction between dictatorial and incentive-based policy interventions affects the capacity of Instrument Variable (IV) methods to estimate the relevant treatment effect parameter of an outcome equation. The analysis is set in a non-trivial framework, in which the right-hand side variable of interest is affected by selectivity, and the error term is driven by a sequence of unobserved life-cycle endogenous choices. We show that, for a wide class of outcome equations, incentive-based policies may be designed so to generate a sufficient degree of post-intervention randomization (a lesser degree of selection on individual endowments among the sub-population affected). This helps the instrument to fulfill the orthogonality condition. However, for a same class of outcome equation, dictatorial policies that enforce minimum consumption cannot meet this condition. We illustrate these concepts within a calibrated dynamic life cycle model of human capital accumulation, and focus on the estimation of the returns to schooling using instruments generated from mandatory schooling reforms and education subsidies. We show how the nature of the skill accumulation process (substitutability vs complementarity) may play a fundamental role in interpreting IV estimates of the returns to schooling.

Analyzing the labor market activity of immigrant families in Germany

This paper analyzes whether immigrant families facing credit constraints adopt a family investment strategy wherein, upon arrival, an immigrant spouse invests in host country-specific human capital while the other partner works to finance the family's current consumption and the spouse's skills accumulation. Using data for West Germany, we do not find evidence for such a specialization strategy. We further examine the labor supply and wage assimilation of families whose members immigrated together relative to families whose members immigrated sequentially. Our estimates indicate that this differentiation is relevant for the analysis of the labor market activities of migrant households.

Kindergarten Entrance Age and Children's Achievement: Impacts of State Policies, Family Background, and Peers

We present evidence that the positive relationship between kindergarten entrance age and school achievement primarily reflects skill accumulation prior to kindergarten, rather than a heightened ability to learn in school among older children. The association between achievement test scores and entrance age appears during the first months of kindergarten, declines sharply in subsequent years, and is especially pronounced among children from upper-income families, a group likely to have accumulated the most skills prior to school entry. Finally, having older classmates boosts a child's test scores but increases the probability of grade repetition and diagnoses of learning disabilities such as ADHD.

Business cycle fluctuations and the life cycle: How important is on-the-job skill accumulation?

We study the effects of on-the-job skill accumulation on average hours worked by age and the volatility of hours over the life cycle in a calibrated general equilibrium model. Two forms of skill accumulation are considered: learning by doing and on-the-job training. In our economy with learning by doing, individuals supply more labor early in the life cycle and less as they approach retirement than they do in an economy without this feature. The impact of this feature on the volatility of hours over the life cycle depends on the value of the intertemporal elasticity of labor supply. When individuals accumulate skills by on-the-job training, there are only weak effects on both the steady-state labor supply and its volatility over the life cycle.

A Dynamic Incentive‐Based Argument for Conditional Transfers*

We compare the long‐run effects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike Mirrlees’ income taxation model, the distribution of skill evolves endogenously. Human capital accumulation follows the Freeman–Ljungqvist–Mookherjee–Ray OLG model with missing capital markets and dynastic bequest motives. Conditional transfers (funded by taxes on earnings of the skilled) are shown to induce higher long‐run output per capita and (both utilitarian and Rawlsian) welfare, owing to their superior effect on skill accumulation incentives. The result is established both with two skill levels, and a continuum of occupations.

Uncovering Dynamics in the Accumulation of Technological Capabilities and Skills in the Mozambican Manufacturing Sector

This paper examines the formation and accumulation of skills and technological capabilities in the Mozambican manufacturing sector. To this effect, it deploys Sanjaya Lall's technology capabilities conceptual and methodological framework to examine these issues for the Mozambican metalworking and light chemical sectors in the context of historical dynamics taking place in Mozambique in the economic and industrial policy spheres. This analysis shows that these two industries are experiencing a process of gradual technological obsolescence, combined with a progressive simplification of production processes that is leading to a weakening of their technology capability and skill base. In this context, neither foreign direct investment nor other mechanisms of technology transfer identified in the literature as contributing to the process of technological and skills accumulation, appear to have been able to reverse these trends. In light of available evidence on recent industrial (policy) developments, this paper argues that this process can be seen as a response to a deteriorating policy and economic environment that in the past two decades has undermined investments in industrial technology development in Mozambique.

Investment-specific technological change, skill accumulation, and wage inequality

Wage inequality between education groups in the United States has increased substantially since the early 1980s. The relative number of college-educated workers has also increased dramatically in the postwar period. This paper presents a unified framework where the dynamics of both skill accumulation and wage inequality arise as an equilibrium outcome driven by measured investment-specific technological change. Working through equipment–skill complementarity and endogenous skill accumulation, the model does well in capturing the steady growth in the relative quantity of skilled labor during the postwar period and the substantial rise in wage inequality after the early 1980s. Based on the calibrated model, we examine the quantitative effects of some hypothetical tax-policy reforms on skill accumulation, wage inequality, and welfare.

The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill?

Cross-sectional tests of the Jack-of-All-Trades theory of entrepreneurship invariably conclude that the accumulation of a balanced skill-mix across different fields of expertise stimulates entrepreneurship. Yet none of these considers individual unobservable characteristics, which may simultaneously determine skill accumulation and occupational choice. Using panel techniques to control for this, I show that gathering expertise across various subjects does not increase the chances of becoming an entrepreneur.

Trade, Wage Gaps, and Specific Human Capital Accumulation*

AbstractWe develop a new framework for the analysis of the impact of trade liberalization on the wage structure and on welfare. Our model focuses on the decision of workers to accumulate firm‐specific skills, by “on‐the‐job” training, knowing that this means their future wages will have to be negotiated, and that the outcome of negotiation will depend on the profitability prospect of firms operating in a new trading environment. We show that trade liberalization may reduce the welfare of a developing country because of its adverse effect on skill accumulation. We also explore the effects of trade liberalization on the wage gap between skilled and unskilled workers.

Skill Accumulation in the Search Unemployment Model

Skill Accumulation in the Search Unemployment Model

A north–south model of intellectual property rights protection and skill accumulation

This paper examines how stronger intellectual property rights (IPR) protection in the south affects the processes of R&D investment, technology transfer and skill accumulation. It finds that stronger IPR protection has only a temporary impact on the innovation rate while it has a negative impact on the long-run imitation rate. In the north, the impact on the process of skill accumulation is negative and increases the within-country wage inequality. In the south, the impact is ambiguous and depends on the externality that skill accumulation generates on the process of education. In addition, the paper shows that skills play a crucial role in attracting FDI inflows, and strengthening IPR protection may be ineffective in attracting technological knowledge when the level of local skill is low.

Wage Dynamics and Economic Development

Wage Dynamics and Economic Development Andrew M. Warner Millennium Challenge Corporation [Comments and Discussion] The primary purpose of this paper is to introduce new data on wages by occupations across fifty-eight countries. The main distinguishing feature of the data is that they were collected with exactly the same methodology at the same time in many countries, thus permitting a high degree of comparability across countries. The data are from surveys of firms, which ask what the firm pays for broad occupational categories, such as office cleaners, secretaries, and managers. The second purpose of the paper is to show empirical evidence from a number of sources on how wage levels correlate with GDP and to interpret this evidence. Various sources of wage data are compared through this lens, both across countries and across time within countries. The paper discusses conditions under which wage growth should keep pace with GDP growth and shows econometric evidence on the determinants of wage levels across countries. This paper begins by showing figures of wages plotted against GDP per worker or GDP per person using a variety of wage data. GDP is used as a common denominator against which wages can be displayed for a variety of occupations across time and across countries. Such plots, however, inevitably provoke criticism: "Of course wages correlate with GDP, since wages are by definition part of GDP." The answer is yes, but not so fast. Among the variables that can break the link between wage levels and GDP are changing participation rates of the labor force, shifting employment between sectors with different wage levels, and changes in the share of labor income in GDP. The paper shows that after these forces play themselves out, simple elasticities between log wage levels and log GDP per worker or log GDP per capita tend to lie in the range 0.6 to 1.0. Some of the wage data presented in this paper show a 1-for-1 elasticity, and some of the regression results show a partial 1-for-1 association after holding constant other variables. [End Page 97] The paper presents econometric evidence to shed light on the forces that drive wage levels around the world. These regressions deal with two methodological issues that need to be confronted by any empirical study of wages and GDP across countries: the bias toward 1 from the fact that wages are part of GDP and the simultaneous determination of wage levels and GDP levels. The paper deals with both issues by using the capital-labor ratio as the driving force behind the determination of wages and GDP. This variable is used both as an instrument for GDP and directly in the estimated wage equations. Some of the important factors found to mediate the wage-GDP relationship are the extent of skill accumulation during growth; the degree of structural change during growth; and, when the wage data are for specific occupations or industries, special factors associated with those occupations or industries. The paper also shows evidence about the role of labor market policies, market competition, and global forces. The paper is organized as follows. The first section discusses the existing wage data. The second section describes the new fifty-eight-country occupational wage data. The third section reviews related studies on wages. The fourth section discusses the evidence on the association between wages and GDP using a variety of data. And the final two sections present and discuss regression evidence in a more formal setting. Data on Wages Until very recently, wage data from different countries were characterized by a low degree of comparability due to differences in the way occupations were classified and wages were measured (sources varied in terms of inclusion of bonuses, in-kind benefits, and pension and insurance contributions). Also data on wages outside of the manufacturing sector were lacking, which is a significant issue because manufacturing can make up a small share of GDP. Data from the 2006 edition of World Development Indicators show that for 1998 the median share...

Immigration and the Survival of the Welfare State

This paper analyzes the political sustainability of the welfare state in a model where immigration policy is also endogenous. In the model, the skills of the native population are affected by immigration and skill accumulation. Moreover, immigrants affect future policies, once they gain the right to vote. The main finding is that the long-run survival of redistributive policies is linked to an immigration policy specifying both skill and quantity restrictions. In particular, in steady state the unskilled majority admits a limited inflow of unskilled immigrants in order to offset growth in the fraction of skilled voters and maintain a high degree of income redistribution. Interestingly, equilibrium immigration policy shifts from unrestricted skilled immigration, when the country is skill-scarce, to restricted unskilled immigration, as the fraction of native skilled workers increases. The analysis also suggests a new set of variables that may help explain international differences in immigration restrictions.