Rather, they are more likely to be due to differences in country-specific technological and institutional environments. In this column, which is based in particular on Caselli and Ciccone (2018), we attempt to distil the lessons from these studies. Have you thought about subscribing? Time and again contributions in this line of research find a relatively modest role for human capital (e.g. Thus, in the context of time-use in many different kinds of leisure activity purposes, the time investment in all the They also noticed that a similar – or indeed an even more pronounced – version of the same phenomenon appeared to be present in the time series for many countries. Topics:  In particular, we show that for plausible values of the elasticity of substitution between workers with different educational attainment levels, some types of skilled US workers could multiply their earnings by more than tenfold by moving to Jamaica. For example, bread and cakes can be said to be substitutes, but they are imperfect since some consumers will buy bread, but still want cake additionally. In particular, he reasons that if college premia are as high where skilled workers are abundant as where they are scarce, it must mean that skilled workers have more human capital in skill-abundant countries than in skill-poor countries. Hendricks,L, and T Schoellman (2018), “Human Capital and Development Accounting: New Evidence from Wage Gains at Migration”, The Quarterly Journal of Economics, 133 (2), 665–700. Ciccone, A, and G Peri (2005), “Long-Run Substitutability between More and Less Educated Workers: Evidence from U.S. States 1950-1990”, Review of Economics and Statistics, 87 (4), 652-663. Movies aren't commodities, and the substitutes aren't perfect at all. Jones (2014) reinterprets the evidence in Caselli and Coleman (2006) and ascribes it to traits of the workers. As there is a broad consensus that the time-series evidence is well explained by skill-biased technical change, Caselli and Coleman posited that the cross-sectional evidence was also likely due to skill-biased differences in technology across countries. Jones's result must therefore be driven by the relative-efficiency effect which, as Caselli and Coleman show, is large for plausible values of the elasticity of substitution between different skills. are imperfect substitutes, as recognized by the use of a non-linear utility that accommodates a diminishing marginal utility as the consumption of any alternative increases. In particular, if one is willing to assume that all of the skill bias of efficiency reflects the human capital of more educated workers, then one can convince oneself that underdevelopment is entirely a human capital issue. The latter policy aims to increase the availability of credit to low-income entrepreneurs and eliminate their reliance on usurious financing. Recent papers by Hendricks and Schoellman (2018), Ek (2018), and Ilzetzki and Simonelli (2018) use very different strategies to identify significant differences in human capital across countries (or across regions), after controlling for years of schooling. If there are four kinds of bottled water and one is half the price of the others, guess which will generate all the sales? A Model of Trade in Imperfect Substitutes with Intercontinental Transport Costs In this chapter and the next, we develop a framework for evaluating whether the regionalization of world trade is good or bad. But the thing is, I didn't need 'that' photo, I just needed 'a' photo. Banking authorities in both China and India have attempted to limit most forms of informal finance by regulating them, banning them, and allowing certain types of microfinance institutions. Caselli, F (2005), “Accounting for Cross-Country Income Differences”, in P Aghion and S Durlauf (eds. The benefit of substitute products is that they provide consumers with variety when choosing goods to satisfy their needs. Klenow and Rodriguez-Clare 1997, Hall and Jones 1999, Caselli 2005). Even though all the movies at the multiplex cost $12 a seat, you can't often substitute one for another to save money. [3] Of course, this still leaves entirely open the question whether there are other approaches to human-capital measurement, other than introducing imperfect substitution, which can boost the contribution of human capital. Copyright © 2020 Elsevier B.V. or its licensors or contributors. Caselli, F, and A Ciccone (2013), “The Contribution of Schooling in Development Accounting: Results from a Nonparametric Upper Bound”, Journal of Development Economics, 104 (1), 199-211. If, conditional on the supply of workers with different educational attainment, wage premia reflect mainly human-capital characteristics, then country of origin-specific skill premia in the US should vary as much as skill premia vary across countries. This evidence does not contradict the evidence in Rossi, or our more general discussion. A long labour economics tradition, however, shows convincingly that workers with different skills are imperfect substitutes (Hamermesh 1993, Katz and Autor 1999, Ciccone and Peri 2005). Assuming that the aggregate production function has a weight of 2/3 on human capital (as is usually assumed), this means that a country’s income increases by approximately 2/3*0.10=0.066 if its workforce’s schooling increases by one year. I show sufficient conditions for a discrete-choice demand system to yield demand for each product which is log-concave in price, and has log-increasing differences in own and another product’s price, leading to strong comparative statics results. Caselli, F, and J Coleman (2006), “The World Technology Frontier”, American Economic Review 96 (3), 499-522. By continuing you agree to the use of cookies. Over the last 20 years, several researchers have developed and refined a set of tools, now known as development accounting, that has allowed – among other things – a quantitative evaluation of the hypothesis that human capital is a major driver of the large gaps in income we observe around the world.

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