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

We propose a novel estimate for human capital and use it in estimating cross-country production functions in a panel-data setting. We compare our results with the ones previously obtained to emphasize the neglected importance... [ view full abstract ]

We propose a novel estimate for human capital and use it in estimating cross-country production functions in a panel-data setting. We compare our results with the ones previously obtained to emphasize the neglected importance that human capital has received so far in this context. Human capital is the expected present-discounted value of future labor income.
Our human capital proxy has two interesting characteristics: it captures the well-known trend observed on the number of years of schooling; its cross-sectional variation (across countries) is much grater than that observed for the number of years of schooling, because it captures cross-country differences in the quality of human capital.
We find human-capital elasticities in production much larger than previous research has found: they range from 0.43-0.92, and are very significant as well -- larger than those obtained by Mankiw, Romer and Weil (1992) -- range 0.28-0.37. Comparisons with estimates using the human-capital proxy provided by PWT, 8.1, also show similar results.
We compared our results with two main papers in the literature -- Caselli (2005) and Schoellman (2012). We found a much more prominent role for human capital than previous research has found.