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Measurement of labor quality growth caused by unobservable characteristics

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  • Thomas Bolli
  • Mathias Zurlinden

Abstract

The standard economy-wide indices of labor quality (or human capital) largely ignore the role of unobservable worker characteristics. In this paper, we develop a methodology for identifying the contributions of both observable and unobservable worker characteristics in the presence of the incidental parameter problem. Based on data for Switzerland over the period 1991-2006, we find that a large part of growth in labor quality is caused by shifts in the distribution of unobservable worker characteristics. The overall index differs little from the standard indices, but contributions to growth attributed to education and age are corrected downwards.

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  • Thomas Bolli & Mathias Zurlinden, 2009. "Measurement of labor quality growth caused by unobservable characteristics," Working Papers 2009-01, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2009-01
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    References listed on IDEAS

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    1. Daniel Aaronson & Daniel G. Sullivan, 2002. "Growth in worker quality," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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    6. Venetia Bell & Pablo Burriel-Llombart & Jerry Jones, 2005. "A quality-adjusted labour input series for the United Kingdom (1975-2002)," Bank of England working papers 280, Bank of England.
    7. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    8. Guido Schwerdt & Jarkko Turunen, 2007. "Growth In Euro Area Labor Quality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 716-734, December.
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    11. Thomas Bolli & Mathias Zurlinden, 2009. "Measuring Growth of Labor Quality and the Quality-Adjusted Unemployment Rate in Switzerland," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 55(2), pages 121-145.
    12. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
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    Cited by:

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    2. Øivind A. Nilsen & Arvid Raknerud & Marina Rybalka & Terje Skjerpen, 2011. "The Importance Of Skill Measurement For Growth Accounting," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(2), pages 293-305, June.
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    4. Han, Jong-Suk & Lee, Jong-Wha, 2020. "Demographic change, human capital, and economic growth in Korea," Japan and the World Economy, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    human capital; labor quality;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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