Standard Human Capital Model Research Articles

Union Coverage and Work-Related Training in the Construction Industry

Using data from the Survey of Income and Program Participation, the author estimates the impact of union coverage on training in the United States, comparing the construction industry with other broad industry sectors. The author finds no statistically significant union training effect in construction or other private-sector industries for employer-paid training. For a more broadly defined job-training measure, however, a large union effect is found in construction, and a smaller, yet statistically significant, effect is found in other private-sector industries. The results are not entirely consistent with either the standard human capital model or models of imperfect competition.

Labour-Market Outcomes of Older Workers in the Netherlands: Measuring Job Prospects Using the Occupational Age Structure

This paper analyses changes in job opportunities of older workers in the Netherlands in the period 1996–2010. The standard human capital model predicts that, as a result of human capital obsolescence, mobility becomes more costly when workers become older. We measure and interpret how changing job opportunities across 96 occupations affect different age and skill groups. Older workers end up in shrinking occupations, in occupations with a lower share of high-skilled workers, in occupations facing a higher threat of offshoring tasks abroad, more focus on routine-intensive tasks and less rewarding job content. This process is not only observed for the oldest group of workers, but for workers aged 40 and above. Observing older workers in declining occupations is to a large extent a market outcome, but declining job opportunities in terms of less satisfying working conditions and job tasks and content could potentially raise incentives to retire early.

Labour-Market Outcomes of Older Workers in the Netherlands: Measuring Job Prospects Using the Occupational Age Structure

This paper analyses changes in job opportunities of older workers in the Netherlands in the period 1996-2010. The standard human capital model predicts that, as a result of human capital obsolescence, mobility becomes more costly when workers become older. We measure and interpret how changing job opportunities across 96 occupations affect different age and skill groups. Older workers end up in shrinking occupations, in occupations with a lower share of high-skilled workers, in occupations facing a higher threat of offshoring tasks abroad, more focus on routine-intensive tasks and less rewarding job content. This process is not only observed for the oldest group of workers, but for workers aged 40 and above. Observing older workers in declining occupations is to a large extent a market outcome, but declining job opportunities in terms of less satisfying working conditions and job tasks and content could potentially raise incentives to retire early.

Education, Innovation, and Long-Run Growth

This study augments a second-generation Schumpeterian growth model to employ human capital explicitly. We clarify the general-equilibrium interactions of subsidy policies to R&D and human capital accumulation in a unified framework. Despite a standard intuition that subsidizing these growth-enhancing activities is always mutually growth promoting, we find a symmetric effects for subsidieson R&D and those on education. Our theoretical result of asymmetric policy effects provides an important empirical caveat that empirical researchers may find false negative relationships between education subsidies and the output growth rate, if they merely rely on the standard human capital model.

Human capital and sorting models reconsidered

Turkey changed its compulsory attendance law in the 1997-1998 academic year. The requirement increased from five to eight years of primary education. After the law change, there is an abrupt increase in the high school enrollment rate. This is despite the fact that the law does not cover high school education. By using the 2003 household budget survey and differences in differences methodology, we find that a typical student is 3.2 percent more likely to have high school education if he is subject to the new law. Moreover, the largest increase in the likelihood of having high school education is attained by the students who have the weakest socioeconomic background. These findings are consistent with the standard sorting model but contrast the standard human capital model.

Slicing and dicing the gender/racial earnings differentials

PurposeThis paper aims to explore an extensive set of determinants of earnings and to offer recent empirical evidence of their effects on gender and racial earnings gaps.Design/methodology/approachMost previous studies looked at gender and racial comparisons independently of each other. This study extends previous studies by considering the interaction between gender and race. Using administrative data from a large Canadian firm, this paper explores the determinants of earnings based on a standard human capital model, comparing the earnings of white females, minority males and minority females with their white male counterparts. Both the dummy variable approach and a decomposition analysis are employed.FindingsThe results show that ranking in the organizational hierarchy accounts for most of the differences in gender and racial earnings, and ranking, together with human capital and job characteristics variables, explains over 90 percent of the earnings gap.Research limitations/implicationsThe analyses in the paper are based on data from a Canadian organization with nation‐wide operations. The findings may not apply to small or medium sized enterprises in Canada and in other non‐Western economies.Practical implicationsTo eliminate the earnings gap, equal pay programs need to be supplemented by effective employers' programs and policies targeted at equal advancement opportunity.Originality/valueThe paper uses firm‐level data, which provides natural controls for variations across firms and allows for more in‐depth analysis of the impact of various factors on earnings differentials.

How Fast Do Wages Adjust to Human-Capital Productivity? Dynamic Panel-Data Evidence from Belgium, Denmark and Finland

The standard human-capital model is based on the assumption that the observed wage of an individual is equal to the monetary value of the individual net human-capital productivity, the so-called net potential wage. We argue that this assumption is rejected by the ECHP data for Belgium, Denmark and Finland. The empirical evidence supports a dynamic approach to the Mincer equation where no equality is imposed but an adjustment between observed and potential earnings is allowed to take place over time. Controlling for regressors' endogeneity, individual heterogeneity and time effects, we estimate a dynamic panel-data wage equation and provide measures of the speed of adjustment in Belgium, Denmark and Finland. Further, we elaborate on the implications of a dynamic approach to the Mincer equation for the computation of the return to schooling, including the implication that this return is not independent of labor-market experience, as suggested by Heckman et al. (2005) and Belzil (2007). Finally, we show that a dynamic wage equation can be seen as the solution of a simple wage-bargaining model and argue that a micro-founded model can fit the data better than a simple adjustment model but requires more theoretical assumptions.

Real options and human capital investment

This paper extends the standard human capital model with real options. Real options influence investment behavior when risky investments in human capital are irreversible and individuals can affect the timing of the investment. Option values make individuals more reluctant to invest in human capital and, as a result, required returns on the investment increase. Real options may help to explain a larger human capital premium for higher education, smaller responsiveness of higher educational investments to financial incentives, and larger sensitivity of higher educational investments to low-return outcomes and human capital risks. Higher tax rates (or lower subsidies) depress human capital investments, but to a lesser extent than in the standard human capital model if not all direct costs are tax-deductible. A flat income tax remains neutral if education expenditures are fully deductible.

Real Options and Human Capital Investment

This paper extends the standard human capital model with real options. Real options influence investment behavior when risky investments in human capital are irreversible and individuals can affect the timing of the investment. Option values make individuals more reluctant to invest in human capital and, as a result, required returns on the investment increase. Real options may help to explain a larger human capital premium for higher education, smaller responsiveness of higher education investments to financial incentives, and larger sensitivity of higher education to low-return outcomes and human capital risks. Higher tax rates (or lower subsidies) depress human capital investments, but to a lesser extent than in the standard human capital model. A flat income tax remains neutral if education expenditures are fully deductible.

Preference formation, school dissatisfaction and risky behavior of adolescents

School dissatisfaction is an important component of the subjective well-being of adolescents associated with “risky behavior” like drug use, unprotected sex, norm violations and illegal behavior. We extend the standard human capital model to joint human investment (education) and disinvestment (risky behavior). Based on this model, we develop a general dynamic framework to analyze the preference formation of children and behavioral change at school. Once an educational norm is set by adults, children can rationally deviate from this norm, while staying at school, after experiencing bad surprises like a school failure. The same type of dynamic equation can be used in a sequence to predict education, satisfaction with school, and a host of risky behavior. We test these assumptions with a unique panel data set on American adolescents attending middle or high school. School dissatisfaction is found to have a significant positive effect upon nine different types of risky behavior.

The Economic Experiences of Refugees in Canada

Canada admits refugees on the basis of compassion and not economic criteria. It is however, important to document the economic successes or failures among Canada’s refugee population in order to understand how post arrival integration policies affect refugee economic performance. This essay examines a set of economic indicators from Canada’s IMDB database to assess the post 1981 Canadian refugee economic experience. With the aid of a standard human capital model we answer a series of economic questions including the length of time required for refugee economic integration, their use of Canada’s social safety net, refugee poverty levels and refugee economic performance vis-a-vis Canada’s family immigrant class. Our main findings are that employed Canadian refugees earn an amount equal to that earned by their family class reference group circa 1980-2001. However, the incidence of social assistance attachment for refugees is substantial and for those refugees who receive any assistance their total income is at the near destitute level.

Labour market characteristics and profitability: An econometric analysis of Hugarian exporting firms, 1986‐951

AbstractThis paper follows through an aspect of microeconomic restructuring in Hungary during the transition period. This restructuring brought about substantial changes in the behaviour of all economic agents. Our study combines labour market and corporate financial information to explore the effect of the quality of labour employed on the profitability of the firm. The quality of labour is measured as that portion of wage differentials that cannot be explained by a standard human capital model. The profitability of Hungarian exporting firms can be explained by economic factors during transition. In addition the quality of labour, export share, wage and bank costs, payables, receivables, foreign ownership, inventories, amortization and equity are all significant explanatory variables.

The relevance of standard estimates of rates of return to schooling for education policy: A critical assessment

This paper examines the accuracy and usefulness of estimated rates of return to schooling based on the standard human capital model of Becker and Mincer. Regarding accuracy, it investigates whether failure to account for differences in ability and school quality lead to significant biases. Estimates using Ghanaian data confirm this possibility. Even when accurate, estimated rates of return to additional years of schooling may have limited policy implications; more useful for governments are rates of return to investments in school quality. The paper uses data on cognitive skills to estimate rates of return to three types of school quality improvements.

An Examination of the Earnings of Real Estate Appraisers

This paper investigates the factors that influence the earnings of real estate appraisers. Seven types of factors are identified and examined: experience, effort, education, professional training and credentials, personal characteristics, firm characteristics, and market characteristics. Appraiser earnings are found to be consistent with the standard human capital model. earnings appear to be most affected by work effort, appraisal certification and ownership stake. In addition, the hypothesis that the earnings of male and female appraisers are equal cannot be rejected.

Optimal investment in human capital under uncertainty

In this paper we extend the standard human capital model with the probability of becoming unemployed and uncertainty about future earnings. Our analysis deviates from earlier human capital cum uncertainty models in assuming risk neutral decision-makers. This allows a straightforward comparison with the standard model and also facilitates calculations of unemployment and uncertainty accounted rates of return to education. The comparative statics of the model reveal that only the effect of changes in the earnings distribution can be signed unambiguously: greater dispersion in earnings by schooling level reduces the returns to schooling. The empirical illustrations suggest that accounting for uncertainty and the probability of becoming unemployed slightly equalizes differences in the rates of return for different levels of schooling.

Sequential migration theory and evidence from Peru

The standard human capital model of labor migration has been successful in explaining several empirical regularities of the migration process. However, there are a number of empirical facts that have not yet been explained or empirically tested; among them, that migrants usually perform more than one move in their lifetime; return migration accounts for a very important share of total migration rates; and there is a high positive correlation between in- and out-migration rates in the more advantageous regions. This paper presents both a simple model explaining these facts and an empirical analysis using data from Peru.

Age and Work Experience in the Decision to Migrate

This study concludes that past migration research studies, by failing to control for years of work experience, have computed a coefficient for the age variable that is the summation of two oppositely signed factors. On the one hand, age increases the psychic cost of moving and decreases the length of the accrual period for benefits thus inhibiting geographic mobility. On the other, age increases the general skill level thus stimulating geographic mobility. By controlling for years of experience, this study more accurately measures the impact of age on the migration decision and introduces a modification to the standard human capital model as presented in migration literature.