From farms to offices: Measuring the role of human capital for structural transformation

Traditional theories explain structural transformation by the decline in the relative demand for agricultural labour over the last two centuries. This column focuses on the ‘human side’ and argues that the relative supply of labour is another important driver. Using data for 52 countries, it shows that an increase in schooling led to a sharp reduction in the agricultural labour supply by equipping younger cohorts with skills more valued outside of agriculture and making them be less willing to stay on the farm. Governments might consider educational policies to accelerate the process of structural transformation, and thus economic development.