Human Capital and Productivity

Measuring the quality of the workforce is extremely difficult, yet increasingly important to developing an understanding of what kind of workers businesses hire and how this affects business competitiveness. Getting information on the education and occupation of large samples of workers is expensive and burdensome.

This project uses the LED data to estimate the amount of human capital each employee brings to the current employer in the form of measured skills (experience and education) and unmeasured skills (estimated using a model from labor economics). A major contribution of this work is LED's ability to directly link the relationship between firm investment in technology and the demand for skilled workers. State partners receive these estimates for the businesses in their home states.

Summary

The research into human capital at the LED program has uncovered a set of very interesting facts about human capital and productivity, earnings inequality and market value.

We find strong differences even with in industries in firm workforce composition. These differences are highly correlated with productivity and market value differences across firms. In particular, we find that human capital is related to market value even after controlling for total physical assets. Interestingly, it is the component of skill that includes "unobservable" (at least to the econometrician) factors that is most closely related to market value. In addition, when we examine earnings inequality, the dispersion in wages across workers due to human capital (about half) and firm effects (about half). We also find that interindustry wage differential patterns differ in terms of role of human capital and firm effects.

More Information

Documentation

• Within and Between Firm Changes in Human Capital, Technology, and Productivity [PDF; File Size: 1.30MB] J. Abowd, J. Haltiwanger, J. Lane, K. Sandusky. (October, 2001)
• "The Measurement of Human Capital in the U.S. Economy" [PDF; File Size: 3.96MB]. Ref: LEHD TP-2002-09 [PDF; File Size: 3.96MB], John M. Abowd, Paul A. Lengermann, and Kevin L. McKinney (updated March 2003)
• "The Relationship Between Human Capital, Productivity and Market Value: Building Up from Micro Evidence" [PDF; File Size: 504KB], J. Abowd, J. Haltiwanger, R. Jarmin, J. Lane, P. Lengermann, K. McCue, K. McKinney, K. Sandusky. Ref: LED TP-2002-14 [PDF; File Size: 504KB]
• "A Layman's Guide to the LED Human Capital Measures" [PDF; File Size: 216KB] Ref: LED InfoDoc ID-2003-04 [PDF; File Size: 216KB], a non-technical illustration of how the human capital measures are derived.

Other information

The LED program has received a major grant from the Alfred P. Sloan Foundation , and is collaborating with six states and five Sloan industry centers (Retail Food, Trucking, Financial Services, Software and SemiConductors) in a two year project entitled "Firms, Workers and Workforce Quality: Implications for Earnings Inequality and Economic Growth."

A new National Bureau of Economic Research book entitled "Measuring Capital in the New Economy ", edited by Carol Corrado, John Haltiwanger and Dan Sichel, is forthcoming.