Working Paper: NBER ID: w4827
Authors: Michael Kremer; Jim Thomson
Abstract: The human capital of young and old workers are imperfect substitutes both in production and in on-the-job training. This helps explain why capital does not flow from rich to poor countries, causing instantaneous convergence of per capita output. If each generation chooses its human capital optimally given that of the previous and succeeding generations, human capital follows a unique rational- expectations path. For moderate substitutability, human capital within each sector oscillates relative to that in other sectors, but aggregate human capital converges to the steady state monotonically, at rates consistent with those observed empirically.
Keywords: human capital; economic convergence; labor economics
JEL Codes: O15; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| young workers' human capital (J24) | wages of older workers (J31) |
| old workers' human capital (J24) | wages of young workers (J31) |
| complementarity between young and old human capital (J24) | oscillations in human capital levels (J24) |
| aggregate human capital (E22) | steady state (C62) |
| path of aggregate human capital converges (O47) | gradual convergence in per capita output (O47) |
| adjustment costs in human capital (J24) | slow convergence (F62) |