Schooling, learning on-the-job, earnings and inequality

Researchers assessing quantitatively the future macroeconomic impact of low fertility rates by the means of simulations invariably assume that young and old workers are perfect substitutes at fixed ratios and that workers of all ages are approximately paid their productivity. But there is empirical evidence which suggests that young and old workers are essentially imperfect substitutes; and that young workers are typically underpaid whereas old workers are typically overpaid. Using a simple many periods overlapping generations model, we show that working under the simplifying assumptions of perfect substitutability and pay equals productivity can be misleading as far as simulation results go for cases of population ageing accompanied by a significant ageing of the labour force. Our analysis suggests that (1) low substitutability between young and old workers could be good news (as far as per capita variables such as labour productivity are concerned); (2) the widespread use of deferred compensation could be bad news; but (3) the combination of both low substitutability and deferred compensation may turn out to neutralise their opposing effects. Note: this is chapter 3 of my PhD thesis. Schooling, learning on-the-job, earnings and inequality Abstract: Why do people in poor countries leave school a lot earlier than people in rich ones? Why should we expect people in poor countries to invest less in learning on-the-job 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 considerable variability in schooling decisions, earnings profiles and measures of inequality. High mortality rates and fast population growth are shown to produce comparatively little investment in human capital, flat earnings profiles and low inequality, both within and across cohorts. Why do people in poor countries leave school a lot earlier than people in rich ones? Why should we expect people in poor countries to invest less in learning on-the-job 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 considerable variability in schooling decisions, earnings profiles and measures of inequality. High mortality rates and fast population growth are shown to produce comparatively little investment in human capital, flat earnings profiles and low inequality, both within and across cohorts. Note: this is chapter 4 of my PhD thesis. Positive shocks to human capital accumulation and growth Abstract: This paper explores two underlying forces which we believe have been behind many cases of fast human capital accumulation in the twentieth century: lower barriers to technology adoption and fast demographic transitions. We build a model that shows that fast declines in mortality followed by sharp reductions in fertility rates, together with lower barriers to technological transfers, can have very strong positive effects on growth rates for several decades. Lower mortality rates and higher rates of technical change act by increasing the rewards to accumulate human capital, while the reduction in fertility rates that follows lower mortality creates an unusually high proportion of people in the labour force for many years. Simulations are conducted by using postwar Japan as a case study. This paper explores two underlying forces which we believe have been behind many cases of fast human capital accumulation in the twentieth century: lower barriers to technology adoption and fast demographic transitions. We build a model that shows that fast declines in mortality followed by sharp reductions in fertility rates, together with lower barriers to technological transfers, can have very strong positive effects on growth rates for several decades. Lower mortality rates and higher rates of technical change act by increasing the rewards to accumulate human capital, while the reduction in fertility rates that follows lower mortality creates an unusually high proportion of people in the labour force for many years. Simulations are conducted by using postwar Japan as a case study. Note: this is chapter 5 of my PhD thesis. Can structural change and growth benefit from growing labour forces? Abstract: This paper suggests that structural change and growth (in countries below the world technological frontier) can benefit from growing labour forces due to decreasing labour mobility with age. Assuming that working experience is to a large extent sector-specific, we demonstrate that workers of young labour forces may optimally choose to be more highly concentrated in sectors close to their country’s technological frontier than workers of old labour forces. Because of this, young labour forces may gain experience crucial for the adoption of even better technologies at faster rates than old labour forces, an advantage which then translates into higher rates of structural change and productivity growth. This paper suggests that structural change and growth (in countries below the world technological frontier) can benefit from growing labour forces due to decreasing labour mobility with age. Assuming that working experience is to a large extent sector-specific, we demonstrate that workers of young labour forces may optimally choose to be more highly concentrated in sectors close to their country’s technological frontier than workers of old labour forces. Because of this, young labour forces may gain experience crucial for the adoption of even better technologies at faster rates than old labour forces, an advantage which then translates into higher rates of structural change and productivity growth. Note: this is chapter 6 of my PhD thesis.