Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States

73 Pages Posted: 6 Jul 2015

See all articles by Eric A. Hanushek

Eric A. Hanushek

Stanford University - Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Jens Ruhose

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management

Ludger Woessmann

Ifo Institute for Economic Research; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Munich - Ifo Institute for Economic Research

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Date Written: June 29, 2015

Abstract

Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. In a complement to international studies of income differences, we investigate the extent to which quality-adjusted measures of human capital can explain within-country income differences. We develop detailed measures of state human capital based on school attainment from census micro data and on cognitive skills from state- and country-of-origin achievement tests. Partitioning current state workforces into state locals, interstate migrants, and immigrants, we adjust achievement scores for selective migration. We use the new human capital measures in development accounting analyses calibrated with standard production parameters. We find that differences in human capital account for 20-35 percent of the current variation in per-capita GDP among states, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses.

Keywords: economic growth, human capital, cognitive skills, schooling, U.S. states

JEL Classification: I250, O470, J240

Suggested Citation

Hanushek, Eric A. and Ruhose, Jens and Woessmann, Ludger, Human Capital Quality and Aggregate Income Differences: Development Accounting for U.S. States (June 29, 2015). CESifo Working Paper Series No. 5411. Available at SSRN: https://ssrn.com/abstract=2627076

Eric A. Hanushek

Stanford University - Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States
650-736-0942 (Phone)
650-723-1687 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jens Ruhose

Leibniz Universit├Ąt Hannover - Faculty of Economics and Management ( email )

Koenigsworther Platz 1
Hannover, 30167
Germany

Ludger Woessmann (Contact Author)

Ifo Institute for Economic Research ( email )

Poschingerstr. 5
Munich
Germany
++49 89 9224 1699 (Phone)
++49 89 9224 1460 (Fax)

HOME PAGE: http://www.cesifo.de/link/woessmann_l.htm

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

University of Munich - Ifo Institute for Economic Research

Schackstr. 4
Munich, 80539
Germany

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