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Assessing education’s contribution to productivity using firm-level evidence

Lara Lebedinski and Vincent Vandenberghe ()

International Journal of Manpower, 2014, vol. 35, issue 8, 1116-1139

Abstract: Purpose - – There is plenty of individual-level evidence, based on the estimation of Mincerian equations, showing that better-educated individuals earn more. This is usually interpreted as a proof that education raises labour productivity. Some macroeconomists, analysing cross-country time series, also support the idea that the continuous expansion of education has contributed positively to growth. Surprisingly, most economists with an interest in human capital have neglected the level of the firm to study the education-productivity-wage nexus. And the few published works considering firm-level evidence are lacking a proper strategy to cope with the endogeneity problem inherent to the estimation production and wage functions. The purpose of this paper is to aim at providing estimates of the causal effect of education on productivity and wage labour costs. Design/methodology/approach - – This paper taps into a rich, firm-level, Belgian panel database that contains information on productivity, labour cost and the workforce’s educational attainment to deliver estimates of the causal effect of education on productivity and wage/labour costs. Therefore, it exclusively resorts to within firm changes to deal with time-invariant heterogeneity bias. What is more, it addresses the risk of simultaneity bias (endogeneity of firms’ education-mix choices in the short run) using the structural approach suggested by Ackerberg Findings - – Results suggest that human capital, in particular larger shares of university-educated workers inside firms, translate into significantly higher firm-level labour productivity, and that labour costs are relatively well aligned on education-driven labour productivity differences. In other words, the authors find evidence that the Mincerian relationship between education and individual wages is driven by a strong positive link between education and firm-level productivity. Originality/value - – Surprisingly, most economists with an interest in human capital have neglected the level of the firm to study the education-productivity-pay nexus. Other characteristics of the workforce, like gender or age have been much more investigated at the level of the firm by industrial or labour economists (Hellerstein

Keywords: Heterogeneity; Education; Endogeneity; Firm-level productivity; Labour cost; Simultaneity (search for similar items in EconPapers)
Date: 2014
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