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The Measurement of Human Capital in the U.S. Economy

John Abowd (), Paul A. Lengermann and Kevin McKinney

Longitudinal Employer-Household Dynamics Technical Papers from Center for Economic Studies, U.S. Census Bureau

Abstract: We develop a new approach to measuring human capital that permits the distinction of both observable and unobservable dimensions of skill by associating human capital with the portable part of an individual’s wage rate. Using new large-scale, integrated employer-employee data containing information on 68 million individuals and 3.6 million firms, we explain a very large proportion (84%) of the total variation in wages rates and attribute substantial variation to both individual and employer heterogeneity. While the wage distribution remained largely unchanged between 1992-1997, we document a pronounced right shift in the overall distribution of human capital. Most workers entering our sample, while less experienced, were otherwise more highly skilled, a difference which can be attributed almost exclusively to unobservables. Nevertheless, compared to exiters and continuers, entrants exhibited a greater tendency to match to firms paying below average internal wages. Firms reduced employment shares of low skilled workers and increased employment shares of high skilled workers in virtually every industry. Our results strongly suggest that the distribution of human capital will continue to shift to the right, implying a continuing up-skilling of the employed labor force.

Keywords: human capital; employer-employee data (search for similar items in EconPapers)
JEL-codes: J24 J31 C23 C63 C81 (search for similar items in EconPapers)
Pages: 101 pages
Date: 2002-04, Revised 2003-03
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Downloads: (external link) Revised version, 2003 (application/pdf)

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