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Measuring Human Capital Using Labor Market Data: An Application to the Study of Cross-Country Economic Growth

Victor Pina Dias; João Victor Issler; Luiz Brotherhood

In this paper, we propose a novel estimate for human capital and use it in estimating cross-country production functions in a panel-data setting. We then compare our results with the ones previously obtained to emphasize the neglected importance that human capital has received so far in this context. Here, human capital is the expected present-discounted value of future labor income. We show how this can be easily implemented in empirical exercises, despite the fact that labor income is a non-stationary integrated process. Our human capital proxy has two interesting characteristics: …rst, it captures the well-known trend observed on the number of years of schooling, present in every country. Second, its cross-sectional variation (across countries) is much grater than that observed for the number of years of schooling, which we credit to the fact that it captures cross-country di¤erences in the quality of human capital. Indeed, the coe¢ cient of variation (unit free) of our proxy of human capital is 3 times that of years of schooling for OCDE countries, and more than 7 times when the Penn World Tables data base is used. As a consequence, its use implies an increased human-capital elasticity in the production function vis-a-vis that obtained using years of schooling, and a more prominent role of human capital in growth accounting exercises.

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