CREAT: Census Research Exploration and Analysis Tool

The Measurement of Human Capital in the U.S. Economy

April 2002

Working Paper Number:

tp-2002-09

Abstract

We develop a new approach to measuring human capital that permits the distinction of both observable and unobservable dimensions of skill by associating human capital with the portable part of an individual's wage rate. Using new large-scale, integrated employer-employee data containing information on 68 million individuals and 3.6 million firms, we explain a very large proportion (84%) of the total variation in wages rates and attribute substantial variation to both individual and employer heterogeneity. While the wage distribution remained largely unchanged between 1992-1997, we document a pronounced right shift in the overall distribution of human capital. Most workers entering our sample, while less experienced, were otherwise more highly skilled, a difference which can be attributed almost exclusively to unobservables. Nevertheless, compared to exiters and continuers, entrants exhibited a greater tendency to match to firms paying below average internal wages. Firms reduced employment shares of low skilled workers and increased employment shares of high skilled workers in virtually every industry. Our results strongly suggest that the distribution of human capital will continue to shift to the right, implying a continuing up-skilling of the employed labor force.

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economist, estimating, data census, employ, labor, economic census, workforce, econometrician, salary, regressing, educated, labor statistics, census business, census bureau, employment statistics, household surveys, aging, research census, census employment

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Standard Industrial Classification, Bureau of Labor Statistics, Social Security Administration, Service Annual Survey, National Science Foundation, National Bureau of Economic Research, Federal Reserve Bank, Current Population Survey, Cornell University, Economic Census, Department of Labor, BLS Handbook of Methods, Alfred P Sloan Foundation, Longitudinal Employer Household Dynamics, AKM, Cornell Institute for Social and Economic Research, LEHD Program, Census Bureau Business Register, Business Register, Detailed Earnings Records, IZA

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