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«IZA DP No. 3067 How General Is Human Capital? A Task-Based Approach Christina Gathmann Uta Schönberg September 2007 Forschungsinstitut zur Zukunft ...»

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DISCUSSION PAPER SERIES

IZA DP No. 3067

How General Is Human Capital? A Task-Based Approach

Christina Gathmann

Uta Schönberg

September 2007

Forschungsinstitut

zur Zukunft der Arbeit

Institute for the Study

of Labor

How General Is Human Capital?

A Task-Based Approach

Christina Gathmann

Stanford University

and IZA

Uta Schönberg

University of Rochester

and IZA

Discussion Paper No. 3067

September 2007

IZA

P.O. Box 7240

53072 Bonn

Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: iza@iza.org Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions.

The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public.

IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion.

Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.

IZA Discussion Paper No. 3067 September 2007

ABSTRACT

How General Is Human Capital? A Task-Based Approach* This paper studies how portable skill accumulated in the labor market are. Using rich data on tasks performed in occupations, we propose the concept of task-specific human capital to measure the transferability of skills empirically. Our results on occupational mobility and wages show that labor market skills are more portable than previously considered. We find that individuals move to occupations with similar task requirements and that the distance of moves declines with time in the labor market. We also show that task-specific human capital is an important source of individual wage growth, in particular for university graduates. For them, at least 40 percent of overall wage growth over a ten year period can be attributed to task-specific human capital. For the low- and medium-skilled, task-specific human capital accounts for at least 35 and 25 percent of overall wage growth respectively.

JEL Classification: J24, J31 Keywords: human capital, skill transferability, wage growth, occupations, Germany

Corresponding author:

Christina Gathmann Hoover Institution Stanford University Stanford, CA 94305-6010 USA E-mail: cgathman@stanford.edu * We thank Katherine Abraham, Min Ahn, Mark Bils, Nick Bloom, Susan Dynarski, Anders Frederiksen, Donna Ginther, Galina Hale, Bob Hall, Henning Hillmann, Pete Klenow, Ed Lazear, Petra Moser, John Pencavel, Luigi Pistaferri, Richard Rogerson, Michele Tertilt, participants at the Society of Labor Economists Meeting, the Society of Economic Dynamics Meeting, the World Congress of the Econometric Society and numerous institutions for helpful comments and suggestions. All remaining errors are our own.

1 Introduction Human capital theory (Becker, 1964; Mincer, 1974) and job search models (e.g. Jovanovic, 1979a;

1979b) are central building blocks for economic models of the labor market. Both are widely used to study job mobility behavior, wage determination and their aggregate implications for wage inequality, unemployment and economic growth.

A crucial decision in these models is how to characterize labor market skills. Human capital and job search theories typically distinguish between general skills like education and experience and speci…c skills that are tied to a …rm or occupation. Important recent contributions have especially focused on the role of speci…c skills, i.e. the idea that skills are not portable across jobs, to explain phenomena like the growth di¤erences between continental Europe and the United States (e.g. Wasmer, 2004), the rise of unemployment in continental Europe (e.g. Ljungqvist and Sargent, 2005) and the surge in wage inequality over the past decades (e.g. Violante, 2002; Kambourov and Manovskii, 2004).

In this paper, we ask how general or speci…c skills accumulated on the job actually are in the data.

In particular, we demonstrate that labor market skills are more transferable than previously considered.

We propose a new way to characterize the speci…city of skills using the concept of ‘task-speci…c human capital’ The basic idea of our approach is straightforward. Suppose there are two types of tasks.

performed in the labor market, for example analytical and manual tasks. Both tasks are general in the sense that they are productive in many occupations. Occupations combine these two tasks in di¤erent ways. For example, one occupation (e.g. accounting) relies heavily on analytical tasks, a second one (e.g. bakers) more on manual tasks, and a third combines the two in equal proportion (e.g. musicians).





Skills accumulated in an occupation are then ‘speci…c’ because they are only productive in occupations which place a similar value on combinations of tasks (see also Lazear, 2003). This type of task-speci…c human capital di¤ers from general skills because it is valuable only in occupations that require skills similar to the current one. It di¤ers from occupation-speci…c skills in that it does not fully depreciate if an individual leaves his occupation. Compare, for instance, a carpenter who decides to become a cabinet maker with a carpenter who decides to become a baker. In our approach, the former can transfer more skills to his new occupation than the latter. The partial transferability of skills across occupations has important consequences for occupational mobility and wages. It implies that individuals are more likely to move to occupations with skills requirements similar to their current occupation. It also implies that task-speci…c human capital, our measure of the transferability of skills across occupations, will be an important source of individual wage growth compared to general or more speci…c labor market skills.

Our particular data set is uniquely suited to analyze the transferability of skills empirically. It combines information on tasks performed in di¤erent occupations with a high-quality panel on complete job histories and wages. The …rst data is a large panel that follows individual labor market careers from 1975 to 2001. The data, derived from a two percent sample of all social security records in Germany, provides a complete picture of job mobility and wages for more than a 100,000 workers. It has several distinct advantages over the data used in the previous literature on occupational mobility.

First, the administrative nature of our data ensures that there is little measurement error in wages and occupational coding. Both are serious problems in data sets like the PSID or NLSY used previously.

Furthermore, we have much larger samples available than in typical household surveys.

The third advantage of our data is that we can measure what tasks are performed in di¤erent occupations. This information comes from a large survey of 30,000 employees at four separate points in time. Exploiting the variation in task usage across occupations and time, we construct a continuous measure of skill distance between occupations. Based on the task data, the skill requirements of a baker and a cook are very similar. In contrast, switching from a banker to an unskilled construction worker would be the most distant move observable in our data. We then use this skill distance measure together

–  –  –

Our …ndings on mobility and wages suggest that human capital is empirically more transferable than previously considered. We …nd that individuals are much more likely to move to similar occupations than suggested by undirected search and turnover models. The distance of actual moves like the propensity to switch occupations declines sharply with labor market experience. These results are consistent with the idea that task-speci…c human capital is an important determinant of occupational mobility. If human capital is task-speci…c and therefore transferable to similar occupations, this should also be re‡ected in individuals’ wages. Our framework explains why tenure in the pre-displacement job has been found to have a positive e¤ect on the post-displacement wage (Kletzer, 1989). We also show that wages and tenure in the last occupation have a stronger e¤ect on wages in the new occupation if the two occupations require similar skills.

We then quantify the contribution of task-speci…c human capital to individual wage growth relative to other general and speci…c skills, using a control function approach. Our estimates show that taskspeci…c human capital is an important determinant of individual wage growth. For university graduates, at least 40 percent of wage growth due to human capital accumulation can be attributed to task-speci…c skills, while occupation-speci…c skills and experience account for 14 and 47 percent respectively. For the medium-skilled (low-skilled), at least 25 (35) percent of individual wage growth is due to task-speci…c human capital.

We use our estimates to calculate hypothetical wage loss due job displacement. We …nd that wage losses due to displacement are partially avoided because workers are able to …nd employment in occupations that require similar skills. For instance, for the high-skilled, wage losses would be more than twice as large if they were randomly allocated to occupations after displacement.

The paper makes several contributions to the literature. First, we introduce a novel way to dene how occupations are related to each other in terms of their skill requirements. In particular, we use data on actual tasks performed in occupations to characterize the distance between occupations along a continuous scale. Previous empirical papers on the transferability of skills across occupations (Shaw, 1984; 1987) have used the frequency of occupational switches to de…ne similar occupations (i.e.

occupations that often exchange workers are assumed to have similar skill requirements).1 A further important di¤erence is that we can analyze empirically both the distance of occupational moves and the contribution of task-speci…c human capital to wage growth over the life cycle.

See also Poletaev and Robinson (2004) who use a discrete measure to de…ne similar occupations.

Second, using our distance measure, we document novel patterns in mobility that are consistent with our view that speci…c labor market skills are more portable than previously considered. A key implication of our framework, which we con…rm with our data, is that the source occupation has a strong

–  –  –

contrast focuses on the determinants of switching …rms (Flinn, 1986; Topel and Ward, 1992) or both …rms and occupations (McCall, 1990; Miller, 1984; Neal, 1998; Pavan, 2005), but has not studied the type and direction of a move.2 Our third contribution is to quantify the contribution of task-speci…c human capital to individual wage growth and compare it to other forms of human capital like experience and occupational tenure.

While a large number of studies have estimated the contribution of …rm-speci…c human capital to individual wage growth (Abraham and Farber, 1987; Altonji and Shakotko, 1987; Altonji and Williams, 2005; Topel, 1991; Kletzer, 1989)3, recent evidence suggests that speci…c skills might be more tied to an occupation than to a particular …rm (Gibbons et al., 2006; Kambourov and Manovskii, 2007; Parent, 2000; Neal, 1999). We show in contrast that speci…c human capital is not fully lost if an individual leaves an occupation. On the contrary, task-speci…c skills are an important determinant of wage growth over the life-cycle.

Finally, our paper provides the …rst attempt to integrate the recent literature using task data (Autor et al., 2003; Spitz-Öner, 2006; Borghans et al., 2006) with human capital models of the labor market.4 Our paper employs data on tasks to propose a new measure of the speci…city of skills. In contrast to the literature on task usage, we

Abstract

from which particular task (analytical, manual etc.) matters for mobility and wages. Instead, we explore the implications of task-speci…c human capital for occupational mobility, the direction of the occupational move, and the transferability of human capital.

In a paper complementary to ours, Malamud (2005) analyzes how the type of university education a¤ects occupational choice and mobility.

See Farber (1999) for a comprehensive survey of this literature.

Autor et al. (2003) for the United States and Spitz-Öner (2006) for West Germany study how technological change has a¤ected the usage of tasks, while Borghans et al. (2006) show how the increased importance of interactive skills has improved the labor market outcomes of under-represented groups. Similarly, Ingram and Neumann (2006) argue that changes in the returns to tasks performed on the job are an important determinant of wage di¤erentials across education groups.

The paper proceeds as follows. The next section outlines our concept of task human capital and how it relates to the previous literature on labor market skills. Section 3 introduces the two data sources and explains how we measure the distance between occupations in terms of their task requirements.

The empirical results on the similarity of occupational moves and its implications for wages across occupations are presented in Section 4. Section 5 quanti…es the importance of task-speci…c human capital for individual wage growth. Section 6 concludes.

2 Economic Mechanism



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