A Century of Human Capital and Hours

By Diego Restuccia and Guillaume Vandenbroucke

http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-450&r=dge

An average person born in the United States in the second half of the nineteenth century completed 7 years of schooling and spent 58 hours a week working in the market. By contrast, an average person born at the end of the twentieth century completed 14 years of schooling and spent 40 hours a week working. In the span of 100 years, completed years of schooling doubled and working hours decreased by 30 percent. What explains these trends? We consider a model of human capital and labor supply to quantitatively assess the contribution of exogenous variations in productivity (wage) and life expectancy in accounting for the secular trends in educational attainment and hours of work. We find that the observed increase in wages and life expectancy account for 80 percent of the increase in years of schooling and 88 percent of the reduction in hours of work. Rising wages alone account for 75 percent of the increase in schooling and almost all the decrease in hours in the model, whereas rising life expectancy alone accounts for 25 percent of the increase in schooling and almost none of the decrease in hours of work.

Interesting paper that shows how important the incentives from higher wages are in getting people to obtain more education. The model assumes that the path of wages is given, though. This can have important implactions when we think of development policy, which implicitely assumes that encouraging higher education will eventually lead to higher wages.

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