Human Capital Accumulation, Education Policy and Earnings Dispersion

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 30.09.2003, 12:15 - 13:30


Presentation by 

Giovanni Gallipoli (University of British Columbia, Vancouver)


It has been argued that a close relationship exists between human capital accumulation and wage dispersion. In this paper we build a general equilibrium OLG model of labor earnings and endogenous human capital (HC) accumulation, allowing for agents' heterogeneity in both ability and uninsurable idiosyncratic shocks, and verify whether a specification consistent with recent changes in UK and US wage inequality can reproduce enrolment rates in education. We use macro and micro level data to estimate the parameters of a production function with three different kinds of human capital. A by-product of our estimation procedure is an approximate empirical density of individual abilities over the working population. We use these estimates to simulate the model numerically and assess the effects of alternative education policies on inequality, productivity and HC accumulation. We also discuss some general properties of non concave value functions, with special focus on uniqueness and continuity of individual optimal policies when choice sets are non-convex.

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