The Human Capital Production Function: New Estimates and Implications for Labor Supply and Taxes

Han Gao, Michael Keane, Kaja Kierulf and Alan Woodland

No 35238, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper estimates a learning-by-doing human-capital production function in which hours affect both current productivity and future human capital. We show that the standard Ben-Porath specification is weakly identified: its objective function is nearly flat along a ridge in parameter space, undermining conventional inference. We develop a flexible sieve alternative that is well-identified, and estimate a concave hours technology using PSID data. Embedding this technology in a life-cycle model, we find very small prime-age labor-supply responses to temporary wage shocks. Despite these low elasticities, optimal labor-income taxes are flat because they distort both current labor supply and future human-capital accumulation.

JEL-codes: C13 C14 H21 J22 J24 (search for similar items in EconPapers)
Date: 2026-05
Note: LS PE
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