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Economic Development, Growth of Human Capital, and the Dynamics of the Wage StructureAuthor(s): Jacob MincerSource: Journal of Economic Growth, Vol. 1, No. 1 (Mar., 1996), pp. 29-48Published by: SpringerStable URL: http://www.jstor.org/stable/40215880

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JournalfEconomic rowth,: 29-48 March, 995) 1995 KluwerAcademic Publishers,Boston.

Economic evelopment,rowthfHumanCapital,andtheDynamicsf heWageStructureJACOBMINCEREconomicsDepartment, olumbiaUniversity,ew York, Y 10027 andNationalBureauofEconomicResesarch

In thispaper elucidatethe sources of growth f humancapital in thecourse of economic development.Onthesupplyside (Section 1) I include thegrowth f family ncome, urbanization, hedemographic ransition,and therising ost of time.The upply ide alone cannotexplainthe continuousgrowth f humancapital as itimplies self imiting eclinein ratesofreturn elow those n alternativenvestments. uch declines are offsetby growing emandsforhuman apital n the abormarket. Growth f demand for abor skills s a function fcapitalaccumulation nd oftechnological hanges. Evidence on thishypothesiss summarized nSection 2 andon supplyresponses ogrowing emandforhuman apital n Section3. Changes nthe kill andwage structuresin the abormarket re an important art f the evidence. he reciprocal elation etween conomicgrowth ndthegrowth fhumancapital s likely o be an important eyto sustained conomicgrowth.A caveatapplies toindirectffects feconomicgrowth n family nstability, hichmay ead to a deteriorationf childhoodhumancapital n somesectors fsociety.Keywords:economicdevelopment, uman apitalJELClassification:24, 31, 1 0

Theconcept fhuman apitalplays majorrole nmodern reatmentsfgrowth heoryndof abor conomics. n onesense, hedistinctionetween he wo s in evelsof ggregation.Atthe macroeconomicevel the social stockofhuman apitaland itsgrowthrecentraltotheprocessof economicgrowth; t the micro eveldifferencesn human apitalstockandin their rowth an explainmuchof theobservedvariationnthewage structurendinthewagedistributionmong ndividuals ndgroups.Although ursued ndependently,these pplications iewhuman apitaland itsgrowths a cause of economicgrowth: fthe conomy s a whole n the heoryfgrowthndof ndividualsn aboreconomics.Humancapital s implicatedntheprocessofgrowth otmerely s a cause butalso asan effect f economicgrowth r ofdevelopments enerated yeconomicgrowth.Thereciprocal elation etween conomicgrowthndthegrowth f human apital s likely obe an importantey osustained conomicgrowth.It smypurpose,n this aper, oelucidate he ources fgrowthfhuman apital. stresstherole ofthefamilyndofthe abormarket,s revealedn research f aboreconomists,includingmyown.

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30 MINCER1. Supply ideThegrowthfhumanapitalntwentieth-centuryconomiesasbeen pectacularfromlow evels f choolingnd great ealof lliteracyven n advancedountriesnthe atenineteenthenturyoa largemajorityfhigh choolgraduatestthepresentime.Thecontinuingrowthfhumanapitals an integralart f several ther rofoundocialtransformationsxperiencednthis entury. able1 shows he hanges or heUnitedStates: 1) growthfeducation,romerymall roportionsfhigh choolgraduatesoalmostniversalompletion,2)a sevenfoldisenper apita eal ncomes,3)urbanization,fromearlyalf f he abor orcen gricultureo ess han percent,4) the emographictransition,romargend xtendedamilies ith igh ertilityndmortalityonuclearndsubnuclearamilies ithmuch reaterongevityndbetterealth,nd 5) increasedemaleparticipationn the abormarket,romminisculeroportionfmarried omenworkingoutsideheir ouseholdsn1890 onearlywo-thirdst the nd f he urrententury.Thedevelopmentsn theUnited tates reparalleledythehistoryf most urrentlyadvanced conomies.Thoughmore ecent,hese rendsreunfoldings well n lessdevelopedountrieshere,s inmost fthem,ncome rowthspositive. able showsthe urrentifferencesetweenoor nd dvancedountries,hich erymuchorrespondtothe rendshown or heUnited tates nTable1. Thetrendsre tronglynterrelated;all aregeneratedy ndfeed ack neconomicrowth.In what ollows sketch he conomicnalysishat elates hese rends o economicgrowthndpointso the rowthfhumanapitals theironsequence.1.1. Direct ffect f ncomeGrowthn Educational rendsEducations an asset hat eneratesotonly arningsut lso a stream f nonmarketutilitiesnvolvingearningnd ulture. ssuch,tmay e vieweds a consumptionood,which,herefore,sdirectlyelatedo ncome. hepositivencome ffectspplylsoto heacquisitionf ducations an nvestmentood, othe xtenthatmperfectapitalmarketsnecessitatedegree f elf-financingf ducation.hepositiveffectfparentalncomeon school nrollmentf theirhildrens documentednmanymicroeconomictudies.IntercountryomparisonsTable ) show imilaresults. ut sTable3 shows,he ffectof ncomesgreatlyeduced:he oefficienteclines reatlyhen ariablesepresentingurbanization,emographichange,nd women'sabor orce articipationre ncluded.The ncome oefficientsreducedecause he dditionalariablesre npart eneratedyincomewage)growth.heir ffectn educationan thereforee viewed s an ndirecteffectf conomicrowth.

1.2. UrbanizationGiven owprice nd ncomelasticitiesf the emandor ood, hegrowthf ndustrialproductivity,hetherrnotgriculturalroductivityrowst he ame r esser ate,esultsin a reduced emand or armabor nd owerwages nagriculturehann ndustry.1he

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ECONOMIC EVELOPMENTNDGROWTH FHUMAN APITAL 33

Table . EducationndFactors ffectingta. Effectsf ncome: imple egressionoefficientsf log) ncome*OLS).On Women'sVariable Years fSchool Enrollment Percent Infant life LaborMale Female Rate Urban Mortality Expectancy ForceRate6

(1) (2) (3) (4) (5) (6) (7)Coefficient 1.83 2.03 19.1 15.1 -32.4 6.9 5.8T-ratio (18.9) (19.6) (29.0) (29.0) (18.2) (35.5) (29.5)R2 .71 .71 .77 .68 .46 .76 .69

b. Factors ffectingducation0: ultipleegressionOLS)DependentVariable InY TFRd LEXP*1 UWU* MUS* R2Maleeducation .53 -.33 .065 .0005 .21 .77(2.3) (2.6) (25) (2.1) (0.6)Female ducation .52 -.28 .092 .0006 -0.90 .80(2.2) (2.2) (3.6) (2.2) (2.6)Secondarychool 6.65 -5.16 .066 .0034 3.91 .85enrollmentate (4.8) (6.0) (3.5) (2.3) (1.7)Sources:U.N.Human evelopmenteports1993-95).Note: ample 83 countriesithomparableatafor ears 970 o 1990 nfive-yearntervals.a. LogofGNPper apita InY; interceptsot hown.b. Ratio fwomen'srbanabor orce opopulation.c. In Y is agged 0yearsnrows1) and 2); interceptsot hown.d. Total ertilityate.e. Life xpectancyt birth.f.Women'srbanabor orceate.g. DummyorMuslim ountries.

1.3. TheDemographicransitionThedemographicransitions theong-termhange romopulationsith igh irthnddeath atesomucharger opulationsithowbirthnddeath ates. amilyizechangesfromargend xtendedouseholdso mallnucleareven ubnuclear)nits. t s inextri-cably lsoa change romowtohighevels f humanapital erperson. he ong-termgrowthfhumanapitals intimatelyonnected ith he emographicransitionoth sa factorn t s well s an outcomef t. Thechangesnfamilyizeand nhumanapitalduringhe ransitionre inked s aneffective,houghotnecessarilyirect,ubstitutionofqualityor uantityf hildren.WhileMalthus asrightnconcludinghat conomicrowthue to ncreasesnpro-ductivityould upportlargeropulation,ispredictionhat opulationrowth ouldultimatelyliminatehencome ains romroductivityrowthas ncorrect.heerroris due tohisbasically iologicalheoryhat ertilitys limited ainlyyfecunditynd

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34 MINCER

that herefore ortalitys the ultimate actor hat djustsnumbers fpeople to availableresources.Moderneconomists iscard heMalthusiannotion f thepredominancefbiologicallyconditioned ertilityndsubstituteor t a demandfunction or hildren3 hat ocuses onboth heir umbersnd"quality,"r heir uman apital.This eads toa betternderstandingofthe actualdynamics fthedemographicransitionhatwas triggeredythe ndustrialRevolutionntheWest ome two enturiesgo and n the essdevelopedworldnthe urrentcentury.Thestartingoint fthe emographicransitionnalysis s thedecline nmortalityhat etin with hegrowthf ncome4nWesternurope.After ratherong ag, fertilityegantodecline nresponse othedecline nmortality.hisresponse,not nticipated yMalthus,revealsthatfertilityecisionsweremattersf choice rather hanbiology. If thefamilycontemplatesn optimal ather hanmaximalnumber fsurvivinghildren,hedecline nmortalityorces revisionnfertilityehavior, incethe ame number f survivors anbeproducedwithfewerbirths.Fertility aythereforeecline,but as thecostofproducinga survivor eclines,5more urvivinghildrenre desired. Since the number f survivorsrepresentshedifference etween irths nd deathsofchildren,ffertilityeclineswhilenumber fsurvivinghildrenncreases, ertility ustdecline ess rapidly hanmortalityyielding ositive ndincreasingates fpopulation rowth.A necessary ondition or reductionnmortalityoproduce reductionnfertilitysa price-inelasticemandfor hildrenT. P. Schultz,1981). To see this,define he cost ofproducing survivinghild s7T5 -^-, (1)

wherep(s) is theprobabilityf survival oadulthood,while c is the ostofraising child,conditional n survival.A reductionnmortalityncreasesp(s), which reducesns andso increases he demandfor urvivinghildren. f b is births erfamily,henumber fsurvivinghildren erfamilys givenbyn5= bp(s). (2)

Usingequations 1) and 2), andholding constant,tcan be shown hat*!.**.* L (3)

where e standsforpriceelasticity. ^n mustbe positiveforbirths o decline,when anincrease np(s) reduces7ts.Hence,only f en>7r| 1 willa decline n birthsmaterialize,even if c does notgrow.But sinceen>n 0, ns increases ndthe birth atedeclines essrapidly hanmortality.The lag prior othedrop nfertilityaybe attributedo\en>1t 1 initially.More likelytheperceivedneed andpractice ffertilityontrol equired cultural djustmenthatwasprotracted.ess ofa lagcanbeexpected nd sobservednthe urrentranstionnLDCs asthe ulture ndtechnologyffertilityontrol re transmittedrom he dvancedcountries.Indeed, he otalduration f transitions expected o be significantlyhortern theLDCs.6

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ECONOMIC EVELOPMENTNDGROWTH F HUMAN APITAL 35

Theincreasesnrates fpopulation rowth"population xplosion") haracteristicfthisinitial rfirst haseof thedemographicransitionid takeplace evenwhen, fter lag,fertilityas declining.But forpopulation rowth ates odecline, s they id in the aterphaseofthedemographicransition,ertilityad todeclinemore tronglyhanmortality.Thishappened rogressivelys costsofraising urvivinghildrenthenumeratorinns)began ooutstriphe ains n urvivalp(s)). But evenwithoutncreasesnc the eductionnmortalityroducedncreasedncentiveso investn human apital: ncreases nlongevityand the mproved ealthunderlyinghem mply greater rofitabilityf investmentnpeopleas the ffectiveayoff eriod engthens.7With imited udgets,nvestmentsnhealthand education fchildren educedfertilityurther. he initial haseof thedemographictransition,henpopulationrowthncreasedmergednto henext haseas fertilityeclinesacceleratednconsequence fgrowingosts c) ofraising hildren.In addition ocostsdue to urban iving, hegrowthfrealwages n ndustryndservices,theopportunityostof time nraising hildren s another actor hat eads todeclines npopulation rowth8nd theultimateompletion fthedemographicransition,ll thewhileproviding urtherncentives or nvestmentn human apital, s the numbers f childrendecline nd ncomeperchildgrows.1.4. Growth ftheFemale Labor ForceGrowth fthefemale abor force s a feature ftwentieth-centuryocieties xperiencingeconomicgrowth.9he basicanalysis f thisphenomenonecognizes heproductive on-marketctivitiesfconsumershat recombinedwith urchasedmarketoodsandservicestocreate inal bjects futilityr "commodities"n Becker's erminology.heseactivitiesuse time, ndgrowthf realwagesraises theopportunityostofnonmarketime. Con-sequentlynputs f nonmarketime timespent n householdproduction are reducedinfavor fsubstitute arketnputs oughtwith ncreasedmarketarnings.The transferof timefrom ouseholdproductiono market arnings howsup in growingaborforceparticipationf womenwhose household ctivities recurtailedn favor fearning ctiv-ities. Anotherffect fthegrowing ost of time s thereduction fhouseholddemandsfor ime-intensivecommodities"uch as childraising,which ccelerates hedownwardtrendnfertility.othconsequences equire n initially harpdivision f labor betweenthe exesin marketndhousehold ctivities,which s clearlymuchgreaterttheoutset feconomicgrowthor n essadvanced conomies)whenwagesare owandfertilityshigh,taking pmuchof the dult ifeof mothers.As a result,work fmarriedwomenoutsidethehouseholds infrequentt that tage.Two qualificationso this nalysis nvolve ncomeeffects.10f demandforhouseholdintensiveommoditieswere ncome lastic (77> 1), theanalysismaynothold. Also, ifproductivityrowthn household ctivitieswereas (ormore)rapidthan n themarket,relative rice hanges hat eneratehe ubstitutionrom ime ntensiveo other ommodi-ties wouldeither otmaterialize rreverse.The answers o thesepossibleobjections re(1) relative rice hanges hat reate heproper ubstitutionove ntheproper irectionolongas market roductivityrowsmorerapidly hanhousehold roductivitya proposi-tion cceptable nboth ogicalandempirical rounds nd 2) ifproductivitynnonmarket

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36 MINCERactivities ere o advance s rapidlys inmarketctivities,elativerices or ousehold(time)-intensiveommoditiesould ot hangever ime,liminatinghe ubstitutionf-fect But ncomerowthue oproductivityrowthould educe he hare f ncomepentontime-intensiveommodities,ence f imepentnthe ousehold,rovidedhe ncomeelasticityfdemandor imentensiveommoditiess ess han or therommoditieslessthan nitary).hisvery lausiblypplies oproductionfnecessitieshat equire greatdealofhouseholdime uch sfood, helter,ndothertilitiesncludinghildren.Smallncomelasticitiesre, ndeed,bservedn mpiricalemandunctionsor umbersof hildren,utarge nes re bservedorxpendituresn hildren'squality."1Here oththe ubstitutionnd ncome ffects ork n the amedirection: uch fthe xpenditureon marketoods ubstitutedornonmarketime s inputso the aisingfchildrenrepurchasedducationalnputs. nd hencomelasticityfdemand orquality"f hildrensuch s their ducations much reaterhanhe lasticityf demand or uantity,s theanalogy ith onsumerurables ould redict,nd sindeed bserved.Insum,he rowthfhumanapitalf hildrensdueto ll threeevelopments:elativepricehangesue o ncreasesn he ost f ime,tandardncomeffects,nd roductivityeffects.I portrayedhegrowthfwomens labor orcendreductionsnfertilitys ointly e-pendentn economicrwage nd ncomerowth,nd hildren'sumanapital rowthsan outcome. fcourse,abor-forcerowthndreductionffamilyize also exert irectnegativeffectsn one nother,herebypeedinghe rocesses.Thegrowthfhumanapital s anoutcomes not estrictedochildren;t lsoextendsto women s theyontemplateheir utureole n themarketnd nthe amily.wocon-siderationsead to ncentivesorwomen'sxpandednvestmentnthemselves.irst,stimepentn heworkforcencreases ithmprovedealthnd ongevity,nd s timepentin child aredecreases,he ayoffohumanapitalnvestmentst school ndon theobgrows ince hepayofferiods lengthened.ncreasesnschool nrollmentnd n obtrainingfwomen re ndeed bservedncorrelationith abor-forcerowth,speciallywith he rowingontinuityf abormarketctivitiesMincer,993a).Second,he ncreas-ingmaritaleparationnd urnoveray erelatedothe ecliningivision f abornthefamilynd oreducedarentaltakesnchildrens their umbereclines. warenessfhigh robabilityfdivorce, hichs ikelyo ause n ncomeosstothe pousewithoutmarketareer,eads o precautionaryrowthfmarketorkctivitieso nsureconomicindependenceseeJohnsonndSkinner,986). Increasednvestmentsn educationndtrainingnddelayedmarriagendfertilityrevital artsf his esponseoriskndmoregenerallyothe rowingxpectationf longworkingife.2. Demand ideAll the escribedffectsf conomicrowthnhumanapital ormationhetherirect rindirect,enerateontinuouslyxpandinguppliesfhumanapital.Higherncomes,heincreasedost f ime,ityiving,he emographicransition,nd hangingoles fwomeninthemarketnd n the amilyall ncreasehemotivationor umanapitalnvestmentby ndividualsndfamilies.

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ECONOMIC EVELOPMENT NDGROWTH FHUMAN APITAL 37

Butthis s nota complete xplanation f theunceasingupward rend nhuman apitalaccumulation. heoretically,trend ue to the xpansion fsupplysself-limiting:oonerorlater uch nvestments ould be curtailed s therateof returnn human apitalwoulddecline ndfallbelowthe ates nalternativenvestments.nfact, ates freturnohumancapitalhavenotdeclinedover thepast century,ust as ratesonphysical apitalremainedtrendless. n theory,heobvious nferences that ecularly rowingmarket emandsforhuman apital iftedhe ates freturnpward s supply rew,npart s a response orisingdemand.The netoutcomewas a fluctuatinguttrendless ateof return n human apitalinvestments.Industryemandsfor killed, ducated, aborincreases ither ecause demandfor tsservices ndproductsncreases rbecause itsproductivityrows s a result fphysicalcapital ccumulationr oftechnological hange.Whenhuman apital s viewed s a factor fproduction,oordinatewith hysical apitaland"raw"orunskilledabor, hypothesisfcomplementarityetween hysical ndhumancapital mpliesgrowth fdemandforhuman apitalas a consequenceofphysical apitalaccumulationGriliches, 969). Physical apital ccumulation aisesthemarginal roductofhuman apitalmore thanthat fraw labor,producingwage (profitability)ncentivesfor heconversion flabor ntohuman apitalbymeansoftrainingnd education.Theaccumulationfphysical apital s notexogenous,however. ndeed thedemandforbothphysical nd humancapitalresponds o opportunitiesorprofithat mergefrom ost-reducingndproductnnovatinghanges ntechnology.Seculargrowth fdemandforhuman apital,resultingrom kill-biased echnologicalchangeNelson ndPhelps, 966)orfrom hysical-humanapital omplementarities,ffersa plausibleresolutionf the pparent uzzleoftrendlessates freturnneducationntheface of continuous pward rends n education.This is not osaythat echnologicalhange s alwaysskillbiasedorthat t s completelyexogenousto the formationf human apital. Indeed,some of themarket esponses oincreased ostsof skilled abor nputsretechnologieshat conomize nskills.Responsesof his ort ave notyet ecomeprominentncurrentabormarkets,uthistoricalxamples,suchas the ssembly ine, renotrare.Thanks othe vailabilityfrichmicrodata ets ndsome ndexes ftechnologicalhangeatthe ectoralevel, thas becomepossible otest hehypothesishat hepaceoftechnologyaffectshe emand or uman apital, singU.S. datacoveringhe ast wo rthree ecades.Changes ntechnologyre difficultomeasure, o the ests re argelyndirect. heyusecontributingactorsuch s R&D intensityrconsequences uch as growthfproductivityas demand hifters.Usinga varietyfmicrodataets, illard ndTan 1986) as wellas Bartel nd Sicherman(1995) found greaterncidence ftrainingn industries hoseproductivityrowthwasfastest.Bartel ndLichtenberg1987) report hat, ased on censusdata,relativelymoreeducatedworkerswereemployedn thosemanufacturingndustriesin 1960, 1970, and

1980) where apitalequipmentwas newer ndresearch nddevelopmentR&D) expen-dituresweremore ntensive.Extending he censusdatatoall broadlydefinedndustries(eighteenectors),Gill 1989) observed reater tilizationf educatedworkersndsteeperwage profilesnsectorswithmorerapiddecade-ongproductivityrowth.

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38 MINCERI tested hehypothesishat ecent echnologicalhange s biased towardhuman apital(Mincer,1993b) on theeighteenU.S. industrialectors,usingannualPSID data of themale laborforce n 1968through987, ndJorgenson-FraumeniroductivityrowthPG)indexes12 ortheperiod1960 through 985. The use of decade long averagesfortheintersectoralross-sectionsf these ndexes educesmuchoftheyear-to-yearrrorypicalof suchresiduals.Consistentwith he kill bias hypothesis,hePSID datashow that morerapidpace oftechnological hange na sectorindexedbyPG) generates greater emandfor ducationandtrainingfthe ectoralworkforce;s evidencedbythefollowing:

The shareof educatedworkersnd theuse oftrainings greaternthe ector. Educationalwage differentialsin percent erms) re largerwithin ectorswithrapidproductivityrowth. Mobility feducated nd, specially fyoung,workersnto hese ectors s observableandappearstoerode muchof the ducationalwage gainsoverthe ourseofa decade. Wage profiles re steeper nprogressiveectors, s incidence ftrainings greaternthem. Separation ates ncrease n the hort un. Theydecline n the ongrun,presumablybecausetrainingntensifies.

All thesefindingsan be viewed s responses ffirms ndworkers o skill-biased ech-nologicalchange. This is true ftheutilization ndwage effectsnd,with n additionalassumption,fthe urnoverffects. hat dditionalssumptionsadegree ffirmpecificityintrainingnvestmentsecessitatedychanging echnology,rmoreprecisely, ignificantemployernvestmentsn suchtraining.In another tudy Mincerand Higuchi,1988) we showedthat hedifference etweentheUnitedStatesandJapan nratesoftechnological hange measuredby sectoral ndnationalJorgensonype otal roductivityrowthndexes) anexplainwhywagestructuresand turnoveratesdiffer cross sectors nd between he twocountries.The remarkablylow turnoverate nJapanviewed as "lifetimemployment"s frequentlyescribed s areflection fa culture hat utsgreat mphasis n group oyalty.Yet inthe sameculture,turnoverates were a greatdeal higher rior oWorldWar I. The differenceppearstobe an effect f theremarkablyapidtechnological rogress n Japan ince 1950. Thistechnological atchup required izable investmentsn human apital, n schools,and inenterprises.hephenomenal rowthf ducational ttainmentsnJapann recent ecades swell known.Theevenmore ntense ffortoadapt, rain,ndretrain orkers or ontinuousrapidtechnological hanges s not visible n availabledata. However, ffects ftrainingon life-cyclewage growth nd on turnoveratesare visible n thenegative elationshipbetween thetwo within ndustrial ectorsobserved n Japanand in the UnitedStates.In bothcountries,ndustries ithmorerapidgrowth ad both teeperwage profiles ndlower urnoverates. ndeed,using heparametersf thoserelations, rate fproductivitygrowthnJapan hatwas four imes hat n theUnited tates n theperiodfrom 960to1980predicted atherwell theover threefoldteeperwage profilesnd the ess than ne- hird

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ECONOMIC EVELOPMENTNDGROWTH F HUMAN APITAL 39

frequencyffirmeparationsnJapan. omewhatweaker ut uitepronounced ifferencesofthe samesortwere observed n a comparison f American ndJapanese lants ntheUnited tates thats, n the ame cultural nvironment.ere themuch argernvestmentsintrainingndscreeningf workersntheJapanese lantsweremoredirectlybservable.Positive ross-sectionalssociations etween hepace oftechnological hange na sectorand ndexes frelative emand orhuman apitaldo not,bythemselves,stablish causalrelationshiporthedirection fcausality, s articulatedn thehypothesisfskill-biasedtechnology. o resolvethepossibledoubts hatmayattach o the nterpretationased oncross-sections,companion ime-seriesnalysiswas undertakens thenext tep.The time-seriesnalysisof annualaggregates vera recent wenty-five-yeareriod sprovided n Mincer 1993c). Thisstudy ocuseson the dramatic hanges nwagediffer-entialsbyeducation ndbyexperience uring heperiodfrom 963 through987. Bothsetsofdifferentialsre, npart,ndicators fthepayoffs or kill,orof ratesofreturn nhuman apital nvestments. luctuationsn them retheoutcome ofchanges nrelativesuppliesofeducated ndexperiencedworkersndin relative emandsfor hem.Bothrel-ative upply nd relative emandvariables rebroughtobear nequations hat explain"thetime eriesofwagedifferentials.he findingshown nTable4 substantiallyonfirmthe ross-sectionalesults: Theyear-to-yearducationalwagedifferentialsbetween ollegeandhigh choolgrad-

uates)arevery loselytracked yrelativeuppliesofgraduatesn roughly) heir irstdecadeofwork xperience ndbychanges ndemand ormore ducatedworkers. helatters indexed yresearch nddevelopmentxpenditureer mployeeRDE) as wellas bytrendsn service mploymentRSG) relative ogoods producing mployment.Ofthese,RDE accounts ormost f the xplanatoryower. With hedeclineofaverageproductivityrowthndthenearcessation faverage ealwagegrowthincetheearly1970s,the kill-biased hanges ndemand ooktheformof increases n demandforworkerswithpostsecondaryducation nd decreases ndemandforworkers t lower ducationevels. The decline n demandforworkers t

lower ducationalevels s attributedysomeanalystssee Murphy ndWelch,1989)tothegrowthfworld rade: mportsndexportsnU.S. trademore han oubled s apercentagefGNPbetween 960and1990. As importompetingndustriesend o beless skill ntensivehismayhave ed to a reductionnwagesof ess skilledworkers.13InmyregressionindingsTable4) the ffectfthenetbalance oftrade ariableRNE)on the killwage gap is significantutquitesmallwhen substitutedor esearch nddevelopmentRDE). It s not ignificanthen ddedtotheRDE variable. Changesn gedistributionscohortffects)ccount,npart, or he bserved teepeningofthe xperience rofilefwages n the1970s: increased roportionsfyoungworkers

("babyboomers") educed heirwagesrelative o olderworkers.14heydo not ccountfor he teepeningfthehigh choolprofilen the 1980sor for he tabilizationf theslopeofthe ollegeprofile etween he1970sand 1980s. Amore omplete xplanationfor he teepened rofiless provided yadditional ariables hat eflecthegrowingprofitabilityfhuman apital.

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Table4. Educational agedifferentialscollege high chool)2 963-1987Variables Coefficients

(1) (2) (3) (4) (5)Intercept -0.09 -0.59 -0.41 0.06 -0.14(1.4) (3.4) (4.6) (1.0) (3.5)RESY_2 -0.065 -0.086 -0.080 0.081 0.002(2.2) (1.9) (3.0) (1.1) (0.2)DR_2 -0.20 -0.14

(4.6) (2.7)PG 1.12 0.45 0.88(2.2) (1.00) (1.9)RDE.2 0.00024 0.00025(12.3) (9.0)RNE -0.011(4.5)RSG 0.088 0.044(4.1) (3.5)EQ 0.000064 0.000028(3.4) (2.1)R2 0.69 0.80 0.91 0.75 0.89Source:Mincer1993c, able ).Notes: -valuesnparentheses.xcluded ariablesot ignificant.Subscripts_2nd_3denote two-yearnd hree-yearag.RESY = Proportionfyoung ollege+graduatesmong oung orkers(experience-10years).DR = Ratio fyoungexperienceessthan r qualto enyears) ototalworkforce.PG= Total actorroductivityrowthJorgensoneasure).RDE = Researchnddevelopmentxpenditureerworker.RNE= Merchandiserade alance s a ratio oGDP.RSG= Ratio f ervice ogoodsproducingmployment.EQ = Expendituren new quipmenterworker.a. Percent agedifferentialetweenmale ollege ndhighchoolgraduates ith -10yearsfworkxperience.

Capital-skill omplementarityppearstobe atwork longside kill-biased hanges ntechnology:whennewequipment erworkers usedas themeasure fcapital ntensity,thevariablehas a positive ffectn the killwagedifferential.t is not lear,however,whether he killbias embodied n newequipment epresentsnythingifferenthanthe ffectf newtechnology.

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The mportancef skill-biasedechnologicalhangenaffectingelativeemandsorhumanapitals invokednan ndirect annern a numberfmicro-leveltudies15hatattempto shed ightnthe ramatichangesn theU.S. wage tructuren the ast wodecades. nthese tudieskill-biasedechnologys suggesteds a hypothesisonsistentwith varietyfobservedhangestthe ndustryrplantevel. These hangesncludeincreasedtilizationfskilledworkers ithin completerrayf ndustriesndplantswhetherrnot hey ngagen orcompete ithnternationallyradedoods nd ervices.The increasen relative)tilizationfskilledworkerss positivelyorrelated ith heincreasen skillwagegaps crossndustriesndplants.This s evidence or growingdemand orkills. f the rowthf nternationalradewere hemajor actornreducingthe emandor nskilledabor nmanufacturingages funskilledaborwould all, ndits elativetilizationnnonmanufacturingould ave een ositivelyorrelatedith heskillwagegap, ut he ppositeorrelations observed.A naturalorollaryfthe ramatichangesnthe kill tructurefwagesnthe1970sand1980ss n he ubstantialrowthnwage and ncome)nequalityasmeasuredy, orexample,he ariancef ogwage), speciallyn heattereriod. hewideningnequalityisviewed y ome perhaps any observerss an ominous eflectionf deterioratingeconomynd ociety.thas timulatedesearchy conomistsnd ociologists.The sense nwhichhangesnwage nequalityre corollaryfchangesnskill if-ferentialsnwages byeducationndage) is obvious:when hese ifferentialshange,totalnequalityhangesnthe ame irection,nlesswithinroup ifferencesoven noppositeirection.hisprovisos intuitivelymplausible,ettdidemergenthe1970s,as some bserverseport:esidualwithinducationndage groups)nequalityidnotnarrow,hen ducationalifferentialshrank.inceresidualnequalitys the argerartoftotalnequality,esolutionsfpuzzles bout hangesnresidualnequalityre matterof omemportancenthe evelopingesearchffortLevy ndMurnane,992; reeman,1994).3. HumanCapital upplyResponsesoGrowthn DemandA questionfgreatnterestswhetherhe rowthf kill ifferentialsnwages ndmoregenerallynwage nequality,ow een or lose o wo ecades,anbeexpectedoreverseitself,nd fso,howfast.Changesn the gedistributionight ave ome ffect. sthebaby oom hatteepenedhewageprofile as followedy baby ust, flatteningofage profiles ightavebeen xpected,ndthisn turn ouldhave ontributedo areductionnequality.ut his idnothappen ecause he ge profilefwages saffectednot nly ydemographichange ut lsoby kill remiums,hichose n he 980s.Themajor uestion,herefore,swhetherhe upplyfhumanapital anbeexpectedogrowsufficientlynresponseohigh ates freturnoastoeventuallyeducehe ates freturntoa normalevel nd o reducenequalityswell.ThesupplyesponsesreanalyzednmyrecenttudyInvestmentnU.S. EducationandTraining"Mincer,994). nanalyzingupplyesponsest simportantodistinguishbetweentocksnd lows fhumanapital. he tockfhumanapital,uch seducationalattainment,xertsn effectneducationalifferentialsnwages,while he low, easured

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byenrollmentsesponds othewagedifferentials,rmoreprecisely o rates f return. heratherengthyagofthebuildup nthe tock feducational ttainmentollowinghanges nthe nrollmentivesrise toapparent aradoxes uchas thegrowthfeducational upplies(attainment)nthe1970swhentheratesofreturn erefalling nd the eveling fsupplywhentherateswererising teeply.Correctly nderstood,he1970s' decline ofrates sdue totheeffect fan increasingtock ccumulated y growthf enrollmentn the1960swhenrateswererising.Stocks eveled off n the1980s as flows f enrollment eclined nthe 1970s inresponse odeclining ates.Consequentlyhegrowth f rates freturnnthe1980swasdue toupward hiftingemand, s is shown n Table4.According o humancapitaltheory,nvestmentsn education school enrollments ndparticipationn training) espondpositively o prospective ates of return s well as toparentalducation nd ncome, ndrespondnegativelyo tuitionosts. InTable5 parentaleducationwasusedtorepresentothnformationalndfinancialdvantages acilitatingheeducation fchildren. ince themeasure ftheeducationalwagedifferential,sed intheempiricalnalysis s not rate freturn,t missesthedirectnettuition)ostsofschoolingas a factorwhich s included nTable 5. The prospectiveducationalwage premiaarepictured s the ratio minusunity) fwages ofcollege tohighschoolgraduates boutadecade after raduation, hich are currentlybservedbyfamilies nd students.This isthe overtakingtageofexperience," hich sminimallyffectedy ob trainingMincer,1974).At all stages enrollmentates nOctoberfollowing igh choolgraduation,nrollmentrates ofhighschoolgraduates ged eighteen o twenty-four,nd enrollmentatesof thepopulation f those ighteenotwenty-ouryears ld the esponse owage premia nd toparental ducationwas positive ndsignificant,hiletuition ad a negative ffect.The educational ipelinefrom ostsecondarynrollmentoattainmentmplies sizablelag. The optimal agmeasured ythemaximalcorrelationn theregressionf attainmentin theyoungpopulationFigure1) on enrollment froughly hesame cohortwas eightyears.Thisregression ielded n R2 = 0.93, whentheproportionfcollegegraduatesnthe wenty-fiveotwenty-ninege groupwas regressedn enrollmentfthese ighteen otwenty-fourearsold eightyearsbefore.Similarly,f thedependent ariable s thecohortat six to tenyearsofworking ge (yearssincecompletion fschooling)theoptimal agis again eightyears, nd R2 = 0.89. A slightlyweaker orrelations obtainedwhen thecohort gedtwentyotwenty-nines usedas therelativeupplyproportion ith ixteen rmoreyears fschooling)variable.It is this relative upplyvariable which affects he rateofreturn egatively, oldingthedemandvariable constant as is shown n Table 4. Figure 1 showshow well theenrollmenteries lagged eightyears)fits elative upply, yshiftinghe ttainmenteriesof theyoungpopulation ightyearsback. Enrollment rowthn the 1960s producesthegrowth fattainmentrior o 1975,while thedeclining nrollmentate n the1970sleadstothe tagnationn the upplyn the1980s. In turn,hegrowthfenrollmentn the1980spredictsn increasing elative upply n the1990s amongtheyoung ohorts, s shown nthe xtrapolationfthe owergraphnFigure1. Thepredictedncreasen attainmentrom1991 to 2000 is,according oFigure1,about 8 percentage oints.Parameter stimates f RESY (theeffects f relative upplyon theeducationalwage

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Table . Enrollmentates,967-1990.Variables PercentfHigh PercentfHigh PercentfPopulationSchoolGraduates SchoolGraduates Age1 -24EnrolledEnrolled ext ctober Enrolled, ge18-24(1) (2) (3) (4) (5)Collegewage 2.9 1.3 1.3 0.77 0.77premium2 (5.1) (3.2) (4.3) (2.8) (3.6)0.45* *0.31* *0.31* *0.23* *0.23*Parental 3.7 1.2 1.2 1.6 1.6education5 (3.7) (1.7) (2.3) (3.4) (4.5)

*0.84* *0.42* *0.43* *0.73* *0.74*Tuition -0.007 -0.002 -0.002 -0.0004 -0.0003(2.9) (0.96) (1.1) (-0.3) (-0.3)-0.81* *-0.29* *-0.26* *-0.08* *-0.06*Intercept 27.7 18.8 18.8 3.2 3.2(3.1) (3.1) (4.1) (0.7) (1.0)Residual rom 0.46 0.32firstegression (3.9) (3.9)R2 0.75 0.69 0.82 0.79 0.88Sources:Mincer1994,Table ). Column1): ConditionfEducationU.S. DepartmentofEducation,ational enter or ducationtatistics:992, able -1).Columns2-5): School nrollmentSocial ndEconomic haracteristicsfStudents(Currentopulationurvey: ctober,992, p.20-474).Notes:All variablesre hree-yearovingverages. -statisticsnparentheses;lasticitiesnasterisks.a. Percent age ifferentialfmale ollege ndhighchool raduatesith -10yearsof xperience.b.Averagechoolingfmaleswith6-30yearsof xperience.

differentials)nTable 4 imply n elasticity f -0.72 ofthewage premiumwithrespectto the relative upply.The predictedncrease n attainmentf 35 percentn theyoungpopulation8/23 nFigure1) would thereforeeducethecollege premium yabout25percent. f the urrentollegepremiumsaboutdouble tsusual average) evel, he upplyresponsewouldreturn hecollegepremiumbouthalfwaytoward ts ong-runverage(1957 to 1990) a decadefrom 993.In this cenariooverhalfof the killshortageswouldbe eliminated ytheend ofthedecadefollowingheyear1993.Thispredictioneliesonsupply ffectsloneandassumesa decelerationfgrowthndemand orhuman apital nd n direct ostsofschoolingsuchas net uition)otheirong-termevels.Clearly, he djustment illbe slower,fgrowthfdemanddoes notdecelerate,nless kill-savingechnologiesre mplemented.The responseof ob trainingo changingdemandfor humancapitalcan be inferredindirectlyrom hanging lopesofwage profilesnd moredirectlyrom LS surveys fthe ncidenceof ob training. he changing lopes ofthewage profilereaffected oth

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Figure . PercentfCollegeGraduatesnthe 5-29Populationshiftedyear ersus 8-24 nrollmentate).Source:Mincer1994,Figure).

bychangesn the rofitabilityftrainingndof tsvolume r ncidence. heslopes realso affectedydemographichanges: hebabyboom ncreasedhe elativeupply finexperiencedorkersnd teepenedhe atio fwages folder oyoungerorkersivenimperfectubstitutionetweennexperiencedndexperiencedorkers.nTable6,boththe roportionfyoung orkersnchangingohortsnd he chooling agepremiumrepositivend ignificantn ffectinghe rofile'slope.In addition,nformationrom 983 and 1991BLS surveyshows hat he ncidenceoftrainingncreasedn the1980swhen heprofitabilityfeducationrew tronglyseeMincer, 994, able11).

4. ProspectsndQuestionsThe ncreasingumanapitalnvestmentsnthe1980s anbeexpectedoproduce igherstocks fhumanapitalnthe1990s ndbeyond, hichn turnould eversehegrowthofrates freturnnd ofwage nequalityt a later ate, rovidedhegrowthfdemandfor ducationnd killedworkersecelerates.fso,estimatesfthe ptimalagbetweenattainmentnd nrollmentndofelasticitiesfrates freturnith especto the upplyofhumanapitaltocks,uggestdecline frates freturnalf-wayowardhe normal"long-runevel nthenext ecade r o.Thesuggestederiodfreadjustmentf upplyndof hewage tructuresexpectedo

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Table . Slope fWage rofile,967-1990High chool College

intercept -0.0165 n.s.(-2.9)rs 0.31 0.12(7.8) (3.6)0.68* *0.27*DR 0.06 0.06(5.1) (6.0)

*0.61* *0.76*u 0.0011 n.s.(5.2)*0.17*R2 0.91 0.60

Source: Mincer 1994, Table 10).Notes: T-statisticsnparentheses; lasticities nasterisks.rs= college wagepremium.DR = ratio fnumbers fworkers f 1-10 years xperienceto all workerswith1-40 yearsofexperience.u = unemploymentatesfor ecenthigh choolgrads.n.s.= not ignificant.

be longer han hedecade-long luctuationsnthepastbecausethe kill-biased rowthndemand, specially n thepastdecade,has beenvery trong, eflectinghebirth fa neweraof nformationndcommunicationechnology.Lookingtothefuture, morebasic questionremains oncerninghescopeofpossiblesupply esponses o thegrowthndemand or kill.Skillsacquired tschooland ontheobare a function fthequality f earningnd notmerely f thetime pent n it. Thereforea bottleneckn the xpansion f human apitalsupplymay ie in the nadequate uality flearningbsorbedbytheworkforce,speciallyat theelementaryndsecondaryevels ofschooling.If thisqualitydeterioratedrremainednadequate n theface ofgrowing echnologicaldemandsn thepastdecade ortwo, tmayhavebeena factorn thewideningndpersistenceof ducational ifferentialsnd n nequalitymoregenerally. vidence ntrendsnquality flearnings difficulto comeby, ut pprehensionboutqualityevels ppears o be ustifiedbya varietyf tests nd nternationalomparisons.At a deeper evelquality roblems renot restrictedust to schooling. Theystartwith hildhooddevelopmentefore nteringschool. Humancapital nadequacies t home andinearly chooling re ikely o affectheefficiencyfhuman apital nvestments.herefore,uality ottlenecksrenot ffictivelyovercomebythe ubstitutionftrainingor chooling:theneeds for emediationncreasethe ost oftrainingnd are ikely oreduceob trainings well.

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46 MINCER5. Childhood umanCapital: Progressr mpediment?In thepast hedivisionf aborwithinhefamilymade hefamilyconomicallynter-dependentndthereforeore table.Thegrowthf realwages, hedecline ffertility,andthemprovementsn healthnd ife xpectancyre ome fthe actorseneratedyeconomicrowthhatedtothe rowthfwomens labormarketarticipationndmarketcareer rientation.heconsequences a considerableeductionn thedivision f aborwithinhe amily.hegreaterconomicndependencef pousescurrentrprospective)maywellgeneratencreasing aritaleparationndturnover.indicatedeforehat hisdevelopmentn urnugmentsomen'sncentives,nprecautionaryr nsurancerounds,to ncreaseheirnvestmentnthemselves.ut he ffectsn the nvestmentnthehumancapital f hildrenreuncertain:ven hough reaterumanapitalnvestmentser hildare he utcomef he emographicransitionnd ontinueorisewith rowingechnology,deteriorations likelyoarise romrowingamilynstability.he attersreflectedotonlynhigheparationates. ostponementsfmarriagesndreductionfmarriageatesas well sgrowingohabitationndnonmaritalirthsre thermanifestationsfprofoundchangesnfamilytructurexperiencedn the dvancedountriesfNorth merica ndWesternurope.Do these ew ndgrowingamilytructuresepresentviable daptationothe onse-quences f conomicrowth,r re heyymptomsfdecay reatedy conomicrowth?The mplicationsor hehumanapital f the arge roportionf childrenivingwithonly neparentronly nebiological arentreproblematic.ecent tudiesMcLanahanandSandefur,994) how hathildrenrowingp n ingle-parentouseholdsretwiceas likelyodrop utofhigh chool, obe unemployed,ndto become eenage arentsthemselves.ftereparation,he ingle arentouseholdoses bout 0percentffamilyincome,hildrenose most ftheir ontact ith athers,hilegrowingroportionsfsinglemothersre way tworkmost f he ay.Evenwhenncomend thnicityreheldconstant,hildrennsingle-parentouseholdsre ikelyo sufferhe onsequencesf areduced umanapital otentialDawson, 991).Sincehumanapitalsa factornproducingdditionsohumanapitalBen-Porath,967;Becker 975), he isadvantagesf n mpoverishedarly umanapitaltockccumulateover lifetime.16lthoughhe epercussionsffamilynstabilityremost ronouncednthepoorpopulation,he roportionfpopulationnpovertyas notgrown ignificantlyinthe ast wo r threeecades,while hegrowthffamilynstabilityas been apidnmost fthe dvancedconomiesnthat eriod.17s there dangerhatconomicrowthiscarryingeeds f ts wndestruction?his chumpeterianhought ay e aswrongsitspredecessor,utmore esearch illberequiredoevaluate henaturenddimensionsof he roblemnd ome olicieswillbeneeded odealwitht.

AcknowledgmentsHelpfulomments ere eceivedrom . Bloom,R. Findlay,. Jovanovic,. Zupnick,and nanonymouseviewer.ompetentesearchssistance asprovidedyO.AzfarndP.Ranjan.NSFsupportsgratefullycknowledged.

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Notes1 Ifagricultural roductivityrowsfaster han ndustrial roductivity,hedemand forfarmabor s still ikelytodecline,giventhe ow income ndprice lasticities.2. See Rosenzweig 1 94) for n instructivenalysisof theeffects fthe greenrevolution" n India.3 Fora comprehensiveynthesisee Becker 1 81 and T. P. Schultz 1981).4. Historians lso stress herelevance fpublichealthmeasures s a factorndependentf ncome.Thispoint sprobablymore pplicabletothecurrentxperience f less developedcountries.5. Costs decline because fewer irths reneeded toproducea survivor.6. Rates of populationgrowthnLDCs begana decline as earlyas the 1960s. Fertilityatesdeclined over50percent incethen T. P. Schultz,1994).7. Thiswas first ointed utbyO'Hara( 1972).8. Thisdescriptionf thedemographicransitions a nonlinear ffect feconomicgrowth npopulation rowthcasts doubton attempts o analyze economicgrowth s an effect f populationgrowth:thesame rateofpopulationgrowth orresponds olow andhigh evels of income,depending n the tateofthedemographictransition.9. The firstnalysisbyMincer 1962) used a price-theoreticpproachand was appliedto the U.S. experience.Becker (1965) contributed theoretical ramework hatutilizestheconceptof the "householdproductionfunction." oldin's book 1990) covers heU.S. historyngreatdetail.10. For a detailed nalysis ee Becker 1965) andMincer 1962).11. Voluminous vidence s cited nT. W. Schultz 1975b) and Becker 1981).12. The Jorgenson-Fraumenindexes ontainmeasures fquantitynd of"quality"of abor nputs.The latter rebased on education, ge, and sex oftheworkforce. he productivityrowth esiduals re,therefore,argelypurgedof humancapital components. This ensuresthatthere s no spuriouscorrelationn theempiricalrelations etweenproductivityrowthnd human apital.13. See articles n Kosters 1994) and a review yBurtless 1995). Based onmicro-leveltudies, escribed elow,mosteconomistsdoubtthat hegrowth ftradehad muchof an effect,fany,on the decline of less skilledwages.14. See Welch 1979) for heanalysisofcohort ffects.15. For comprehensive eviews see Levy and Mumane (1992) and Freeman 1994). No directmeasuresoftechnologyre availableexceptfor study fcomputer se anditseffects yKrueger 1993).16. Lesser additions o human apitaltranslatentoflatter age profiles.1 . If thewelfare ystems a factor n thedisintegrationfpoorfamilies,tscontributiono theproblemmayhaveactuallydiminishedn thepasttwodecades as welfarebenefits eclined n theUnitedStates.

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