Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Economics

Supervisor

Dr. Elizabeth Caucutt

Abstract

This thesis consists of three chapters on skilled workers and the roles they play in economic development. In the first chapter, I use an overlapping generations model of education choice and skilled migration to study conditions under which a low-skill economy can grow its skilled labor force in the presence of skilled emigration. This occurs when skill premiums are low, and there are individuals in the economy who can afford an education. The model is calibrated to data on 23 low and middle-income countries. For 22 of the 23 countries, any increase in the rate of skilled emigration leads to a net decline in the steady-state proportion of skilled workers. This is because increasing skilled emigration rates increases future expected benefits to skill, but leaves current schooling costs the same. So more people do not obtain an education because cost constraints are binding. I then provide empirical evidence that the cost of education is relatively high in developing countries, and that these costs are likely binding using information on the (un)availability of student loan programs. Poland is the only country which benefits from skilled emigration due to a combination of very low skill premiums and low costs of education. For brain drain to lead to a net increase in human capital, reducing education costs and relaxing credit constraints are important policy responses.

The second chapter studies the effects of education policies emphasizing basic education at the expense of higher levels of education. Larger estimates of the wage returns to basic education compared to higher levels of education, after adjusting for public costs, are often cited as evidence of over-investment in higher education. These estimates have provided a justification for the shift of public funding towards basic education in many developing countries. This paper shows that these estimates are not reliable for education policy when productivity depends on the proportion of higher educated workers (a productivity externality), and higher educated workers are an input in the production of basic education (a human capital externality). A methodological contribution is describing how the productivity and human capital externalities could be separately identified. Using data on cross-country agricultural productivity gaps, and returns to education for immigrants in the U.S. by country of origin, I show that the productivity and human capital effects of higher educated workers are quantitatively important. The productivity and human capital effects are equal to, and in some cases greater than, the oft-cited difference between estimates of the public-cost-adjusted returns to basic and higher education. For most countries in the dataset, the externalities are large enough to rationalize observed education investments as optimal.

The final chapter studies the relative productivities of skilled and unskilled workers across countries. I break down the cross-country ratio of the productivity of skilled to unskilled workers into two components: the human capital embodied in skilled workers, and the physical productivity of skilled and unskilled workers which reflect production techniques. I find that skilled workers from rich countries embody more human capital (compared to poor countries), and skilled workers in rich countries are also more physically productive. This is interpreted as skilled workers from high-income countries being of better quality, and firms in high-income countries adopting more technologies that are skilled-complementary. Furthermore, for most of the 49 countries in my dataset, I find their production techniques to be inappropriate; the estimated physical productivity of skilled workers, relative to the unskilled, is too low given the skilled-unskilled labour ratio. Most countries could increase output by increasing the physical productivity of skilled workers, and decreasing that of unskilled workers. I also find that poorer countries tend to be farther away from their appropriate technologies. I compute 7-fold and 4-fold increases in GDP-per-capita for countries in the 2 lowest income quartiles, just from increasing the relative physical productivity of skilled to unskilled workers. The results suggest large barriers to the adoption of skilled worker complementary technologies, and also present a rationale for why increases in schooling attainment have not led to growth in several countries.

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