From Skills to Occupations: Comparative Advantage and Cross-Country Income Differences

Charles Gottlieb (), Jan Grobovsek () and Alexander Monge-Naranjo

No 2025-11, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We revisit the role of human capital in cross-country income differences. We develop a general equilibrium model where workers of different skill groups sort into occupations by comparative advantage. Wages and employment depend on workers' skill quality, occupation-specific country-embedded productivity, and occupational distortions. Using harmonized microdata for 50 countries, we infer these components from the model's equilibrium conditions. Workers in rich countries exhibit higher skill quality and substantially greater productivity, especially in white-collar occupations. Human capital explains 52 percent of output-per-worker gaps, largely through the complementarity between skill composition and quality, and further amplified by technology choices biased toward skilled labor. Adopting the US distribution of skill groups yields limited gains for poor countries without higher quality. Occupational distortions are more severe in low-income countries, reducing white-collar employment and raising wage premia, but with modest aggregate effects.

Keywords: human capital; development accounting; occupational sorting; country-embedded productivity; wage premia (search for similar items in EconPapers)
JEL-codes: E24 J24 J31 O15 O47 (search for similar items in EconPapers)
Pages: 74
Date: 2025-10-08
New Economics Papers: this item is included in nep-dge, nep-inv and nep-lma
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Published in 2025

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:101966

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DOI: 10.29338/wp2025-11

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