Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis

Elizabeth King, Claudio Montenegro and Peter Orazem

Working Papers from University of Chile, Department of Economics

Abstract: T.W. Schultz (1975) proposed that returns to human capital were highest in economic environments where technology, price or production shocks were common and managerial skills to adapt resource allocations to those shocks were most in need. We hypothesize that variation in returns to human capital across developing countries can be explained in part by government institutions that blunt the magnitude of those shocks or that limit individual abilities to respond to those shocks. Using estimated returns to schooling and experience from 122 household surveys from 86 developing countries, we demonstrate a strong positive correlation between economic freedom and returns to human capital. The positive effect is observed at all quantiles of the wage distribution. Economic freedom benefits the most skilled who get higher returns to schooling; but it also benefits the least skilled who get higher returns from experience.

Keywords: Returns to Education; Returns to Experience; Economic Freedom, Inequality; Quantiles. (search for similar items in EconPapers)
JEL-codes: J31 O15 P10 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2010-07
New Economics Papers: this item is included in nep-hrm, nep-lab, nep-lam and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis (2012)
Working Paper: Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis (2012)
Working Paper: Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis (2010)
Working Paper: Economic freedom, human rights, and the returns to human capital: an evaluation of the Schultz hypothesis (2010)
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