Talent, Labor Quality, and Economic Development
FRB of St. Louis Working Paper No. 2013-027B
51 Pages Posted: 22 Sep 2013 Last revised: 26 Mar 2014
Date Written: January 1, 2014
We develop a theory of labor quality based on (i) the division of the labor force between unskilled and skilled workers and (ii) investments in skilled workers. In our theory, countries differ in two key dimensions: talent and total factor productivity (TFP). We measure talent using the observed achievement levels from the Programme for International Student Assessment (PISA) scores. Our findings imply that the quality of labor in rich countries is about twice as large as the quality in poor countries. Thus, the implied disparities in TFP levels are smaller relative to the standard growth model using a measure of labor quality based on Mincer returns. In our model, the resulting elasticity of output per worker with respect to TFP is about 2.
Keywords: Economic Development, TFP, PISA, Labor Quality
JEL Classification: O11, O40, E10
Suggested Citation: Suggested Citation