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ofEconomicGrowth,
Journal 1: 29-48 (March,1995)
© 1995 Kluwer Academic Publishers,Boston.
EconomicDevelopment,GrowthofHumanCapital,
and theDynamicsoftheWageStructure
JACOBMINCER
New York,NY 10027 and
EconomicsDepartment,Columbia University,
National Bureau of Economic Resesarch
In this paper I elucidate the sources of growthof human capital in the course of economic development. On
the supply side (Section 1) I include the growthof familyincome, urbanization,the demographictransition,
and the risingcost of time.Thesupplyside alone cannot explain the continuousgrowthof humancapital as it
impliesa self limitingdecline in ratesof returnbelow those in alternativeinvestments.Such declines are offset
by growingdemands forhumancapital in the labor market.Growthof demandforlabor skills is a functionof
capital accumulationand of technologicalchanges. Evidence on thishypothesisis summarizedin Section 2 and
on supplyresponsesto growingdemandforhumancapital in Section 3. Changes in theskill and wage structures
in the labor marketare an importantpartof the evidence.The reciprocalrelationbetweeneconomic growthand
the growthof humancapital is likelyto be an importantkey to sustainedeconomic growth.A caveat applies to
indirecteffectsof economic growthon familyinstability, which may lead to a deteriorationof childhoodhuman
capital in some sectorsof society.
Keywords:economic development,humancapital
J24,J31,01 0
JEL Classification:
1. SupplySide
ofIncomeGrowth
1.1. DirectEffect on EducationalTrends
1.2. Urbanization
Givenlowpriceandincomeelasticities
ofthedemandforfood,thegrowth ofindustrial
whether
productivity, ornotagricultural growsatthesameorlesserrate,results
productivity
ina reduceddemandforfarmlaborandlowerwagesinagriculture
thaninindustry.1The
ECONOMIC DEVELOPMENT AND GROWTHOF HUMAN CAPITAL 31
5 1 * *
8 S ° vo t^
3 = <N ^ TT
1?
I
!.
« - -
§ |
< 2 s
a |
£ ^
I 3 9 8 3
ll S 5 2 |
^ I
* a
«^ « 3
O .S 3 K
<. On
O ON
"" Q- la o
I~ ?J .ill
ll «
3 <
1 sl» 1 &*
^ 1^?^ § 55 I I
I ."
U §
1
o
I&
! *. 1 I
s " s
t is 1 1 if
°
gQ. O O 3 O
2
< 0 £'*e 3*l^
tS ■£ °° ft o . . . .
32 MINCER
Source:U.N. HumanDevelopment
Report(1993).
Notes
middleincome:GNPpercapita
a. Highincome:GNPpercapita< $6,000(35 countries);
lowincome:GNPpercapita< $500 (46 countries).
> $500to$6000(92 countries);
ages25 +.
b. Population
c. Purchasing
powerparity($).
d. Rateofgrowth ofGNPpercapita.
e. Perthousandlivebirths.
andFactorsAffecting
Table3. Education It
ofIncome:SimpleRegression
a. Effects Coefficients
of(log) Income*
(OLS).
On Women's
Variable YearsofSchool Enrollment Percent Infant life Labor
Male Female Rate Urban Mortality Expectancy ForceRate6
Education0:
b. FactorsAffecting Multiple (OLS)
regression
Dependent
Variable In Y TFRd LEXP*1 UWU* MUS* R2
Maleeducation .53 -.33 .065 .0005 .21 .77
(2.3) (2.6) (25) (2.1) (0.6)
Femaleeducation .52 -.28 .092 .0006 -0.90 .80
(2.2) (2.2) (3.6) (2.2) (2.6)
school
Secondary 6.65 -5.16 .066 .0034 3.91 .85
rate
enrollment (4.8) (6.0) (3.5) (2.3) (1.7)
Sources:U.N.HumanDevelopment Reports(1993-95).
Note:Sample= 83 countries withcomparable dataforyears1970to 1990infive-year
intervals.
=
a. Log ofGNPpercapita InY; intercepts notshown.
b. Ratioofwomen'surbanlaborforcetopopulation.
c. InY is lagged10 yearsinrows(1) and(2); intercepts
notshown.
rate.
d. Totalfertility
e. Lifeexpectancyatbirth.
f. Women'surbanlaborforcerate.
g. DummyforMuslimcountries.
Transition
1.3. TheDemographic
n5 = bp(s). (2)
=«*.*- L
«*!.* (3)
wheree standsforprice elasticity.e^n mustbe positiveforbirthsto decline, when an
increasein p(s) reduces7ts.Hence, onlyif |en>7r|< 1 will a decline in birthsmaterialize,
even if c does not grow. But since en>n< 0, ns increasesand thebirthratedeclines less
rapidlythanmortality.
The lag priorto thedropin fertilitymaybe attributed \> 1 initially.More likely
to \en>1t
theperceivedneed and practiceof fertility controlrequireda culturaladjustmentthatwas
protracted.Less ofa lag can be expectedand is observedinthecurrent in LDCs as
transtion
thecultureand technologyof fertility controlare transmittedfromtheadvancedcountries.
Indeed,thetotaldurationof transition shorterin theLDCs.6
is expectedto be significantly
ANDGROWTH
ECONOMICDEVELOPMENT OF HUMANCAPITAL 35
2. DemandSide
effects
Allthedescribed ofeconomic onhuman
growth whether
capitalformation director
indirect,
generatecontinuouslyexpanding the
suppliesofhumancapital.Higherincomes,
increased
costoftime,cityliving,
thedemographictransition, rolesofwomen
andchanging
inthemarketandinthefamily - all increase forhumancapitalinvestment
themotivation
byindividuals
andfamilies.
ECONOMICDEVELOPMENTANDGROWTH
OF HUMANCAPITAL 37
frequency offirmseparationsinJapan.Somewhatweakerbutquitepronounceddifferences
of the same sortwere observedin a comparisonof Americanand Japaneseplantsin the
UnitedStates- thatis, in thesameculturalenvironment. Here themuchlargerinvestments
in trainingand screeningof workersin theJapaneseplantsweremoredirectlyobservable.
Positivecross-sectionalassociationsbetweenthepace oftechnologicalchangeina sector
and indexesof relativedemandforhumancapitaldo not,bythemselves,establisha causal
relationship nor thedirectionof causality,as articulatedin the hypothesisof skill-biased
technology.To resolvethepossibledoubtsthatmay attachto the interpretation based on
cross-sections,a companiontime-series analysiswas undertaken as thenextstep.
The time-seriesanalysisof annualaggregatesover a recenttwenty-five-year periodis
providedin Mincer(1993c). This studyfocuseson thedramaticchangesin wage differ-
entialsby educationand by experienceduringtheperiodfrom1963 through1987. Both
are,in part,indicatorsof thepayoffsforskill,or of ratesof returnon
sets of differentials
humancapital investments.Fluctuationsin themare the outcomeof changesin relative
suppliesofeducatedand experiencedworkersand in relativedemandsforthem.Bothrel-
ativesupplyand relativedemandvariablesare broughtto bear in equationsthat"explain"
thetimeseriesof wage differentials. The findingsshownin Table 4 substantially confirm
thecross-sectional results:
• Changesinage distributions(cohorteffects)account,inpart,fortheobservedsteepening
oftheexperienceprofileofwages inthe1970s: increasedproportions ofyoungworkers
("babyboomers")reducedtheirwages relativeto olderworkers.14 Theydo notaccount
forthesteepeningof thehighschool profilein the 1980s or forthestabilizationof the
slope ofthecollegeprofilebetweenthe1970s and 1980s. A morecompleteexplanation
forthesteepenedprofilesis providedby additionalvariablesthatreflectthegrowing
of humancapital.
profitability
40 MINCER
Variables Coefficients
(1) (2) (3) (4) (5)
Intercept -0.09 -0.59 -0.41 0.06 -0.14
(1.4) (3.4) (4.6) (1.0) (3.5)
RESY_2 -0.065 -0.086 -0.080 0.081 0.002
(2.2) (1.9) (3.0) (1.1) (0.2)
DR_2 -0.20 -0.14
(4.6) (2.7)
PG 1.12 0.45 0.88
(2.2) (1.00) (1.9)
RDE.2 0.00024 0.00025
(12.3) (9.0)
RNE -0.011
(4.5)
RSG 0.088 0.044
(4.1) (3.5)
EQ 0.000064 0.000028
(3.4) (2.1)
R2 0.69 0.80 0.91 0.75 0.89
Source:Mincer(1993c,Table2).
Notes:t-values
inparentheses. notsignificant.
Excludedvariables
and_3denotea two-year
Subscripts_2 andthree-year
lag.
RESY = Proportionofyoungcollege+graduates amongyoungworkers
1-10years).
(experience
DR = Ratioofyoung(experience lessthanorequaltotenyears)to
totalworkforce.
PG = Totalfactor
productivity
growth (Jorgensonmeasure).
RDE = Researchanddevelopment expenditure perworker.
RNE = Merchandise tradebalanceas a ratiotoGDP.
RSG = Ratioofservicetogoodsproducingemployment.
EQ = Expenditureonnewequipment perworker.
a. Percent betweenmalecollegeandhighschool
wagedifferential
with6-10 yearsofworkexperience.
graduates
• Capital-skillcomplementarityappearsto be at workalongsideskill-biasedchangesin
technology:whennewequipmentperworkeris usedas themeasureofcapitalintensity,
thevariablehas a positiveeffecton theskill wage differential.
It is notclear,however,
whethertheskill bias embodiedin new equipmentrepresentsanythingdifferent than
theeffectof new technology.
ECONOMIC DEVELOPMENT AND GROWTH OF HUMAN CAPITAL 41
3. HumanCapitalSupplyResponsesto GrowthinDemand
Table5. Enrollment
rates,1967-1990.
bychangesin theprofitability
oftrainingandofitsvolumeorincidence.The slopesare
also affected
by demographicchanges:thebabyboomincreased therelativesupplyof
inexperiencedworkersandsteepenedtheratioofwagesofoldertoyoungerworkers given
imperfectsubstitution
between inexperienced workers.In Table6, both
andexperienced
theproportionofyoungworkers inchangingcohortsandtheschooling
wagepremium are
and in the
positive significantaffecting profile's slope.
In addition, from1983and 1991 BLS surveysshowsthattheincidence
information
oftrainingincreased ofeducation
in the1980swhentheprofitability grewstrongly (see
Mincer,1994,Table11).
4. Prospectsand Questions
Table6. SlopeofWageProfile,
1967-1990
HighSchool College
intercept -0.0165 n.s.
(-2.9)
rs 0.31 0.12
(7.8) (3.6)
♦0.68* *0.27*
DR 0.06 0.06
(5.1) (6.0)
*0.61* *0.76*
u 0.0011 n.s.
(5.2)
*0.17*
R2 0.91 0.60
Acknowledgments
Notes
growsfasterthanindustrialproductivity,
1. If agriculturalproductivity the demand forfarmlabor is stilllikely
to decline,giventhelow incomeand priceelasticities.
2. See Rosenzweig ( 1994) foran instructive
analysis of theeffectsof the"greenrevolution"in India.
3 . For a comprehensivesynthesissee Becker ( 198 1) and T. P. Schultz (1981).
4. Historiansalso stresstherelevanceof publichealthmeasuresas a factorindependentof income. This pointis
probablymoreapplicable to thecurrentexperienceof less developed countries.
5. Costs decline because fewerbirthsare needed to produce a survivor.
6. Rates of populationgrowthin LDCs began a decline as early as the 1960s. Fertilityratesdeclined over 50
percentsince then(T. P. Schultz,1994).
7. This was firstpointedout by O'Hara( 1972).
8. This descriptionof thedemographictransition as a nonlineareffectofeconomic growthon populationgrowth
casts doubt on attemptsto analyze economic growthas an effectof populationgrowth: the same rate of
populationgrowthcorrespondsto low and highlevels of income,dependingon thestateof thedemographic
transition.
9. The firstanalysis by Mincer (1962) used a price-theoretic
approach and was applied to theU.S. experience.
Becker (1965) contributeda theoreticalframeworkthat utilizes the concept of the "household production
function."Goldin's book (1990) coverstheU.S. historyin greatdetail.
10. For a detailedanalysissee Becker (1965) and Mincer(1962).
11. Voluminousevidence is citedin T. W. Schultz(1975b) and Becker (1981).
12. The Jorgenson-Fraumeni indexescontainmeasuresof quantityand of "quality"of laborinputs.The latterare
based on education,age, and sex of theworkforce.The productivity growthresidualsare, therefore,largely
purgedof human capital components. This ensures thatthereis no spurious correlationin the empirical
relationsbetweenproductivity growthand humancapital.
13. See articlesin Kosters(1994) and a reviewby Burtless(1995). Based on micro-levelstudies,describedbelow,
mosteconomistsdoubtthatthegrowthof tradehad much of an effect,if any,on the decline of less skilled
wages.
14. See Welch (1979) fortheanalysisof cohorteffects.
15. For comprehensivereviews see Levy and Mumane (1992) and Freeman (1994). No directmeasures of
technologyare available exceptfora studyof computeruse and its effectsby Krueger(1993).
16. Lesser additionsto humancapitaltranslateintoflatter
wage profiles.
17. Ifthewelfaresystemis a factorin thedisintegration
of poor families,itscontribution
to theproblemmayhave
actuallydiminishedin thepast two decades as welfarebenefitsdeclinedin the UnitedStates.
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