nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2006‒05‒20
ten papers chosen by
Fabio Sabatini
Universita degli Studi di Roma, La Sapienza

  1. Risk Aversion and Human Capital Investment: a Structural Econometric Model By Thomas Brodaty; Robert Gary-Bobo; Ana Prieto
  2. Differences in Learning and Inequality* By Ådne Cappelen
  3. Human capital and corruption: a microeconomic model of the bribes market with democratic contestability By Pedro Cosme Costa Vieira; Aurora A.C. Teixeira
  4. On the Optimal Timing of Benefits with Heterogenous Workers and Human Capital Depreciation By Robert Shimer; Iván Werning
  5. Inferring the unobserved human capital of entrepreneurs By Arnab Bhattacharjee (University of-St Andrews); Jean Bonnet (CREM – CNRS); Nicolas Le Pape (CREM – CNRS); Régis Renault (THEMA – CNRS)
  6. Schooling, learning on-the-job, earnings and inequality By Luis P. Correia
  7. Can Risk Aversion Explain Schooling Attainments? Evidence from Italy By Christian Belzil; Marco Leonardi
  8. Intergenerational Mobility and Assortative Mating. Effects of an Educational Reform By Holmlund, Helena
  9. Do Amenities and Diversity Encourage City Growth? A Link Through Skilled Labor By Steven Poelhekke
  10. All in the Extended Family: Grandparents, Aunts, and Uncles and Educational Attainment By Linda Loury

  1. By: Thomas Brodaty (THEMA, Université de Cergy-Pontoise); Robert Gary-Bobo (Université de Paris 1, IDEP and CEPR); Ana Prieto (THEMA, Université de Cergy-Pontoise)
    Abstract: We propose to model individual educational investments as a rational decision, maximizing expected utility, conditional on some characteristics observed by the student, under the combined risks affecting future wages and schooling duration. Assuming that students' attitudes toward risk can be represented by a CRRA utility, we show that the risk-aversion parameter can be identified in a natural way, using the variation in school-leaving ages, conditional on certified educational levels. Estimation can be performed by means of classic Maximum Likelihood methods. The model can easily be compared with a non-structural, simplified version, which is a standard wage equation with endogenous dummy variables representing education levels, education levels being themselves determined by an Ordered Probit model. We find small but significant values of the coefficient of relative risk aversion, between 0:1 and 0:9. These results are obtained with a rich sample of 12,500 young men who left the educational system in 1992, in France.
    Date: 2006–03–15
  2. By: Ådne Cappelen (Statistics Norway)
    Abstract: Rapid growth in productivity combined with increasing wage dispersion in some countries, notably Anglo-Saxon, has been the subject of numerous studies. The main hypothesis in the literature is that an increased skill premium provides a link between productivity growth and inequality. If this view is correct it poses some challenges for policies that focus on promoting a learning economy. However, data for many OECD-countries show that increased wage dispersion is not a common feature. Many countries have enjoyed a fairly stable or even declining dispersion of wages. Also in countries where the production and use of ITC-goods are significant, there are hardly any changes in wage dispersion. Thus one must look at a broader set of factors other than skilled biased technical change in order to explain the diverse picture of changes in inequality. This paper points to changes in educational attainment and institutions relating to wage bargaining as possible explanations for the varying experience wrt. wage inequality between OECD-countries in recent decades.
    Keywords: Inequality; skill premium; bargaining
    JEL: D31 D33 J31 J50
    Date: 2006–04
  3. By: Pedro Cosme Costa Vieira (Faculdade de Economia, Universidade do Porto); Aurora A.C. Teixeira (CEMPRE, Faculdade de Economia, Universidade do Porto)
    Abstract: To overcome market failures society creates common laws that stimulate or penalize individual actions, the enforcement of which depends on the actions of public authorities who may be susceptible to corruption. Thus, a new market emerges where ‘influences’ are traded. Legislators have incentives to deviate from the goal of efficiency and produce laws that maximize the gains that can be expected from bribes. We model this behaviour for an autocracy versus a democracy, using a microeconomic framework. We assume that in an autocracy rulers have a monopoly over the bribes market, whereas in a democracy conflicting groups compete in the bribes market. In order to bring about the downfall of the incumbent rulers, these groups inform voters of the rulers' deviant actions so that, by a stochastic process, they convince voters of the existence of bribes and therefore gain their votes. The models constructed produce results that are compatible with the well-known stylized facts, namely that (1) in a democracy the level of corruption is lower than in an autocracy, although still positive, that (2) in environments where the level of human capital is higher (the proxy for the voters’ receptivity to the efforts of the opposition), regimes are closer to democracies and the level of corruption is lower, and that (3) the level of corruption is higher in more regulated economies.
    Keywords: Human capital; corruption; democracy; computational models
    JEL: J24 D73 C63
    Date: 2006–05
  4. By: Robert Shimer; Iván Werning
    Abstract: This paper studies the optimal timing of unemployment insurance subsidies in a McCall search model. Risk-averse workers sequentially sample random job opportunities. Our model distinguishes unemployment subsidies from consumption during unemployment by allowing workers to save and borrow freely. When the insurance agency faces a group of homogeneous workers solving stationary search problems, the optimal subsidies are independent of unemployment duration. In contrast, when workers are heterogeneous or when human capital depreciates during the spell, the optimal subsidy is no longer constant. We explore the main determinants of the shape of the optimal subsidy schedule, isolating forces for subsidies to optimally rise or fall with duration.
    JEL: J6
    Date: 2006–05
  5. By: Arnab Bhattacharjee (University of-St Andrews); Jean Bonnet (CREM – CNRS); Nicolas Le Pape (CREM – CNRS); Régis Renault (THEMA – CNRS)
    Abstract: The goal of this paper is to study the role of unobserved human capital in entrepreneurial choice and its impact on the survival of newly created firms. Our starting point is that, when starting a new business, an entrepreneur’s labor market situation (e.g. employed or not) reflects how his human capital may be valuated through salaried labor. This in turn affects the entrepreneurial decision so that, an entrepreneur’s human capital should be correlated with the state at which he decided to start a new firm. We illustrate this point with descriptive statistics computed from a survey of French startups. These statistics show that the impact of education on the new firm’s survival is most pronounced for firms created by individuals salaried in their preferred branch of activity while it is rather limited if the entrepreneur was in the wrong branch or newly unemployed. In this paper we argue, both theoretically and empirically, that these results may be explained by some unobserved heterogeneity in the entrepreneur’s human capital that is correlated both with the initial labor market situation and with some observable measures of human capital such as education or experience. We first present a simple model of entrepreneurial choice that provides predictions about an entrepreneur’s actual human capital as a function of human capital observed by the econometrician as well as the individual’s state in the labor market when the firm was created. The model allows for some information asymmetry on the labor market as well as other sources of inefficiencies such as incentive problems due to moral hazard. It also allows in a simple way for some dynamic considerations on the part of the entrepreneur regarding potential depreciation of his human capital. We argue that the data may be best explained by a model where employer’s information on employee’s human capital is sufficiently poor and where there is a strong concern about human capital depreciation for those with a high level of observed human capital. We then run some duration analysis on our data on new firms’ survival by estimating a proportional hazard Cox model with partial maximum likelihood. The estimation results are coherent with the descriptive statistics on the impact of education on survival for different initial states of the entrepreneur. This econometric analysis will be completed with additional regressions that allow for correcting for unobserved heterogeneity in order to evaluate its magnitude and nature. We have done some preliminary work where unobserved heterogeneity is modelled through random effects (frailties) for different subgroups of individuals according to education level and experience that have a gamma distribution. Our preliminary results show that there is significant unobserved heterogeneity but the estimates of the frailties are consistent with the results obtained by running a standard Cox estimation.
    Keywords: Entrepreneurship, Labor Market, Human Capital Valuation, Information Asymmetries, Duration of the New Firm
    JEL: J24 L25 D8 C41
    Date: 2006
  6. By: Luis P. Correia
    Abstract: Why might people in poor countries leave school earlier and invest less in learning on-thejob than people in rich ones? How do these human capital decisions impact on inequality? To give quantitative answers to these questions, I build an overlapping generations model with optimal human capital accumulation and a given distribution of abilities. Variation in mortality and population growth rates can generate large variability in schooling decisions, earnings profiles and measures of inequality. High mortality and population growth rates are shown to produce comparatively little investment in human capital, flat earnings profiles and low inequality, both within and across cohorts.
    Keywords: human capital, earnings profiles, schooling, inequality.
    JEL: I20 J11 J24 O11 O40
    Date: 2006–05
  7. By: Christian Belzil (CNRS-GATE, CIRANO and IZA Bonn); Marco Leonardi (University of Milan and IZA Bonn)
    Abstract: Using unique Italian panel data, in which individual differences in behavior toward risk are measured from answers to a lottery question, we investigate if (and to what extent) risk aversion can explain differences in schooling attainments. We formulate the schooling decision process as a reduced-form dynamic discrete choice. The model is estimated with a degree of flexibility virtually compatible with semi-parametric likelihood techniques. We analyze how grade transition from one level to the next varies with preference heterogeneity (risk aversion), parental human capital, socioeconomic variables and persistent unobserved (to the econometrician) heterogeneity. We present evidence that schooling continuation probabilities decrease with risk aversion at low grade levels, but increase with risk aversion at the time when the decision to enter higher education is made. However, differences in attitudes toward risk account for a modest portion of the probability of entering higher education. Differences in parental human capital and ability(ies) are much more important.
    Keywords: risk aversion, education, human capital, dynamic discrete choices
    JEL: J24
    Date: 2006–05
  8. By: Holmlund, Helena (Swedish Institute for Social Research, Stockholm University)
    Abstract: This paper provides new evidence on the role of the educational system for intergenerational mobility. I evaluate an educational reform, implemented in Sweden in the 1950s, which postponed ability tracking and extended compulsory education from seven to nine years. The reform may have influenced intergenerational mobility by several different mechanisms. First, there is the possibility of a direct effect of extending compulsory education. Second, the age at which ability tracking takes place can be crucial for the educational choice. In particular, the earlier the tracking, the more likely it is that the schooling decision is made by the parents. Third, recognizing that economic well-being is determined by the income of the household, assortative mating plays a major role in the mobility process. I argue that the peer group in which couples form can be affected by the educational system, and evaluate how the reform affects intergenerational mobility through changes in assortative mating. Differences-indifferences estimates and sibling-difference estimates indicate that the reform indeed resulted in a sizeable increase in intergenerational income mobility, and in a lower educational association between children and parents. The reform also contributed to reducing the association in education between an individual’s partner and parents, which I interpret as an effect operating through reform effects on mating patterns.
    Keywords: -
    Date: 2006–05–10
  9. By: Steven Poelhekke
    Abstract: The share of skilled workers in urban populations has steadily increased since 1970 in US metropolitan areas, but more in some cities than in others. A higher concentration of skills is a sought after asset for cities as it affects population growth positively, also when the initial share is instrumented for by using land-grant colleges. However, skilled cities may attract more skilled workers, but not because they are more skilled initially: increasing returns are rejected when controlling for fixed effects and bias due to inclusion of a lagged dependent variable. Several amenities such as a low-skilled personal service sector do affect the concentration of skills positively. Although firms seem to benefit from externalities, there is no convincing case for an effect on the concentration of college graduates in a city.
    Keywords: urban and city growth, human capital, skills, spillovers, externalities, concentration, diversity, amenities
    JEL: J24 R1 R30 O11 O18
    Date: 2006
  10. By: Linda Loury
    Abstract: Previous work on social interactions has analyzed the effects of nuclear family, peer, school, and neighborhood characteristics. This paper complements this research by first showing that individuals from similar nuclear families often differ in extended family member characteristics. It then demonstrates that older extended family members - aunts, uncles, and grandparents – independently affect college attendance probabilities and test score results of their younger relatives. In some cases, the sizes of the estimated effects are large enough to substantially narrow the achievement gap between disadvantaged and other youth.
    Date: 2006

This nep-hrm issue is ©2006 by Fabio Sabatini. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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