Age Earnings Profiles and TFP Differences: Financial Institutions in a Vintage Human Capital Model

Yong Kim
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Yong Kim: Yonsei University

No 492, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper considers a structural link between TFP differences and age earnings profiles across rich and poor countries as documented by Lagakos, Moll, Porzio and Qian (2012). I consider economies which differ in borrowing constraints arising from differences in financial institutions in the context of the canonical vintage human capital model of Chari and Hopenhayn (1992). Countries with tighter borrowing constraints have lower TFP and shallower age earnings profiles. When countries can interact through trade, the relative difference in borrowing constraints gives rise to a pattern of global technology diffusion where frontier countries are exclusively adopted in rich countries with steeper age earnings profiles and then trickle down to poorer countries with shallower age earnings profiles. Using estimates of the complementarity between young and old workers documented by Katz and Murphy (1992) and Jeong, Kim and Manovskii (2012), I assess the ability of the model to match observed differences in TFP and age earnings profiles.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:492

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