Human Capital and Education
With Pietro Garibaldi and Thepthida Sopraseuth, Revise and Resubmit Quantitative Economics
We study two first-order economic consequences of vertical mismatch, using a simple (neoclassical) model of under- and over-employment. Individuals of high type can perform both skilled and unskilled jobs, but only a fraction of low-type workers can perform skilled jobs. People have different costs over these jobs. First, we calibrate the model to match US CPS time-series since the 1980s. To control for unobserved heterogeneity, we compute wages based on workers who have switched between skilled and unskilled jobs. We show that changes in educational mismatch has contributed one-sixth as much as skilled-bias technological progress for the rise in the college premium. Second, we calibrate the model to match moments of 50 US states, to measure the output costs of frictions generating mismatch. The cost of frictions is 0.26% of output on average but varies between 0.06% to 0.77% across states. The key variable that explains the output cost of vertical mismatch is not the percentage of mismatched workers but their wage relative to well-matched workers.
Keywords: mismatch, underemployment, overemployment.
With Lian Allub and Zoë Kuehn, Conditionally Accepted Economic Journal
Capital-skill complementarity in production implies non-trivial interactions between the availability of human capital and financial constraints. Firms that are constrained in their access to finance hire a lower proportion of skilled workers than unconstrained firms. Conversely, a lack of human capital increases skilled wages, reducing firms’ desired capital intensity and thus loosening firms’ effective financial constraints. To assess the macroeconomic implications of such firm-level interactions, we build an occupational-choice model with capital-skill complementarity in production, which we calibrate to US data. We vary financial frictions, educational attainment, and total factor productivity across countries, and we quantify how aggregate output, wage inequality, and entrepreneurship are affected by financial market liberalizations and increases in educational attainment. For aggregate output, the joint effect of both factors is, on average 30 % larger than the sum of the individual effects. Taking the educational attainment of the population as given, in countries with a negligible share of tertiary educated workers and low TFP, financial development has only small effects on aggregate output.
JEL Classification: O11, O40, E22, J24, E24..
Keywords: financial development, financial frictions, capital-skill complementarity, educational attainment, entrepreneurship, college premium.
Conditionally Accepted Economic Journal, 2023
With Andri Chassamboulli
We set up a search and matching model with a private and a public sector to understand the effects of employment and wage policies in the public sector on unemployment and education decisions. The effects on the educational composition of the labor force depend crucially on the structure of the labor market. An increase of skilled public-sector wages has a small positive impact on educational composition and larger negative impact on the private employment of skilled workers, if the two sectors are segmented. If there are movements across the two sectors, it has large positive impacts on education and on skilled private employment. We highlight the usefulness of the model for policymakers by calculating the value of public-sector job security for skilled and unskilled workers.
JEL Classification: E24; J31; J45; J64.
Keywords: Public-sector employment; public-sector wages; unemployment; skilled workers; education decision; public-sector job security premium.
Published, 2023
With Pietro Garibaldi and Thepthida Sopraseuth
The public sector hires disproportionately more educated workers. To rationalize this finding, we propose a model of private and public employment with a perfectly competitive private sector, and exogenous public wages. Our also economy features heterogeneity across individuals and jobs, and a simple sorting mechanism that generates underemployment – educated workers performing unskilled jobs. We find that the public-sector wage differential and excess underemployment account for 15 percent of the education bias, with the remaining accounted for by technology. In a counterintuitive fashion, we find that more wage compression in the public sector raises inequality in the private sector.
JEL Classification: E24; E62l; J20; J24; J31; J45.
Keywords: Public-sector employment; public-sector wages; underemployment; education.
Published, 2021
Revista de Historia Económica Journal of Iberian and Latin American Economic History
With Matilde Machado
In 1940, the Portuguese government approved a massive primary school construction plan that projected a 60% increase in the number of primary schools. Based on the collection of a new dataset, we describe literacy levels in Portugal prior to the plan as well as the plan’s strategy regarding the location of schools. We then estimate the causal impact of the increase in the number of schools between 1940 and the early 60s on enrolment and literacy, all at the county level. We conclude the increase in the number of schools was responsible for 80% of the increase in enrolment and 13% of the increase in the literacy rate of the affected cohorts.
JEL Classification: I28, I25, I26, N34, N64
Keywords: School construction, investment in education, historical expansion of education, literacy growth, schooling expansion, primary school.
Published, 2020
A model with search and matching frictions and heterogeneous workers was established to evaluate a reform of the public sector wage policy in steady-state. The model was calibrated to the UK economy based on Labour Force Survey data. A review of the pay received by all public sector workers to align the distribution of wages with the private sector reduces steady-state unemployment by 1.9 percentage points.
JEL Classification: E24; E32; E62; J45.
Keywords: Public sector employment; public sector wages; public sector wage premium, unemployment; skilled workers; worker heterogeneity.
Published, 2018
With Javier Fernandez Blanco
Exit rates from unemployment and re-employment wages decline over an unemployment period after controlling for worker observable characteristics. In this study, the role of unobserved heterogeneity in an economy where workers are informed privately about skills and they direct their own search is investigated. We show that the unique equilibrium is separating and that skilled workers have more job opportunities with higher wages. The composition of the unemployment pool varies with the duration of unemployment, so the average exit rates and wages fall with time. The separating equilibrium relies on the ability of firms to commit to renting an input that is complementary in terms of production to the skills of worker and performance-related pay schemes.
JEL Classification: J01, J21, J42, J64.
Keywords: Asymmetric Information, Directed Search, Unemployment Duration.
Published, 2017
With Zoë Kuehn
Countries with a lower fraction of workers with secondary education have smaller firms. We set up a model of occupational choice where individuals have primary, secondary or tertiary education. A more educated work force raises firm size and productivity. More educated workers earn higher wages, and hence among educated individuals only the more able become entrepreneurs. We find that within the framework of our model, different educational attainments can explain one third of the difference in average firm size between the US and Mexico. While improved educational attainments hence imply an increase in firm size over time, a fall in the price of capital together with capital-skill complementarity acts in the opposite direction, something that can explain a relatively constant average firm size in the US since the late 1970’s. Our policy experiments highlight additional effects of public employment and a skill bias in public hiring on firm size and productivity.
JEL Classification: J24, J45, E24, H30, O11.
Keywords: firm size, educational attainment, entrepreneurship, college premium, high school premium, public employment.
Published, 2017
