Human capital aggregation and relative wages across countriesJournal of Macroeconomics, 2008, vol. 30, issue 4, pages 1587-1601 Abstract: Most of the growth accounting literature relies on an aggregate production function to determine the contribution of factors of production relative to that of total factor productivity (TFP) in explaining differences in incomes across countries. I show that the importance of TFP in accounting for cross-country income differences depends crucially on how skilled and unskilled labor are aggregated. Further, cross-country evidence on the relationship between relative wages and relative endowments of skilled and unskilled labor suggests that the two types of labor should not be aggregated into a single factor of production. Growth accounting decomposition using a commonly used nested-CES aggregate production function that allows skilled and unskilled labor to be used as separate factors of production results in a significantly greater role for TFP in accounting for income differences across countries than that found by past studies. The finding that different aggregate production functions lead to significantly different conclusions about the role of TFP in accounting for cross-country income differences calls for a more general approach to understanding such differences. Keywords: Growth; accounting; Aggregation; Human; capital; Relative; wages (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:jmacro:v:30:y:2008:i:4:p:1587-1601 Access Statistics for this article Journal of Macroeconomics is edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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