Urban Versus Rural Return to Human Capital in Portugal: A Cookbook Recipe for Applying Assignment Models

C. N. Teulings and José Vieira

LABOUR, 2004, vol. 18, issue 2, 265-291

Abstract: Abstract. The Portuguese economy has been characterized by modernization since the post‐war period, and Lisbon is a centre of this process. This paper analyses rates of return on human capital in Lisbon versus the rest of the country in the period 1982–92. An assignment model of heterogeneous workers to heterogeneous jobs is applied. We introduce the concept of the complexity dispersion parameter, which measures job heterogeneity and the ease of substitution between worker types. It is free dimension and can be compared across countries. We also develop a cookbook recipe for the estimation of this parameter. The main implication of the model — a high return to human capital is associated with similar workers being assigned to more complex jobs — is confirmed by the data. The complexity dispersion parameter suggests that paying half of the optimal wage level at least doubles the cost per efficiency unit of labour.

Date: 2004
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