Experience Matters: Human Capital and Development Accounting

Abstract

We use international household-survey data to document that experience-wage profiles are flatter in poorer countries than in richer countries. We find a quantitatively similar pattern when we estimate returns to foreign experience by country of origin among U.S. immigrants. The most likely explanation for both findings is that workers accumulate less human capital from experience in poorer countries. Taking this into consideration in development accounting substantially increases the role of human capital in accounting for cross-country income differences.