Working Paper: NBER ID: w8710
Authors: Esther Duflo
Abstract: This paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country. From 1974 to 1978, the Indonesian government built over 61,000 primary schools. The school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974, but not among the older cohorts. 2SLS estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3.8% to 10% and increased their formal labor force participation by 4% to 7%. I propose a two-sector model as a framework to interpret these findings. The results suggest that physical capital did not adjust to the faster increase in human capital.
Keywords: education; labor market; Indonesia; school construction program
JEL Codes: O1; O4; I2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Proportion of primary school graduates in the labor force (J21) | Wages of older cohorts (J39) |
| Proportion of primary school graduates in the labor force (J21) | Formal labor force participation among educated and uneducated workers (J49) |