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Human Capital and the Size Distribution of Firms

Pedro Gomes and Zoe Kuehn ()

No 8268, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Countries that have relatively fewer workers with a secondary education have smaller firms. The shortage of skilled workers limits the growth of more productive firms. Two factors influence the availability of skilled workers: i) the education level of the workforce and ii) large public sectors that predominantly hire individuals with a better education. We set up a model economy with a government and private firm formation where production requires unskilled and skilled jobs. Workers with a secondary education are pivotal as they can perform both types of jobs. We find that level of education and public sector employment account for 40-45% of the differences between the United States and Mexico in terms of average firm size, GDP per capita, and GDP per hour worked. We also show that the impact of public employment on skill premiums and productivity measures depends on the skill bias in public hiring.

Keywords: firm size; educational attainment; skill complementarities; public employment; college premium; high school premium (search for similar items in EconPapers)
JEL-codes: E24 H30 J24 J45 O11 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-06
New Economics Papers: this item is included in nep-bec, nep-hrm, nep-lab, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published - Published in Review of Economic Dynamics, 2017, 26 , pp. 164-179.

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