DP714 Endogenous Growth, Human Capital, and Industry Wages

Author(s): Rudolf Winter-Ebmer
Publication Date: September 1992
Keyword(s): Endogenous Growth, External Effects, Human Capital, Industry Wage Differentials
JEL(s): J24, J31, O40
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=714

Lucas' 1988 model of the external effects of human capital formation is used as a starting point for an analysis of the impact of human capital on wages. Most empirical tests of new growth theory are based on time-series and cross-section data. This paper suggests a microeconometric approach to test Lucas' basic assumption of external effects of human capital. First, the internal effects of education are filtered out using wage functions for individuals. Second, the resulting industry wage premiums are regressed on industry-specific characteristics and, above all, on average human capital in the industry, to account for the external effects of human capital. The hypothesis is corroborated for Austria data. Finally, alternative hypotheses such as self-selection or varying individual human capital productivity in different sectors are examined.