The human side of structural transformation

We show that the global human capital increase during the 20th-century contributed to structural transformation. We document that almost half of the decline in aggregate agricultural employment was driven by new birth cohorts entering the labor market. We use data on educational attainment and compile a comprehensive list of policy reforms to interpret the differences in agricultural employment across cohorts. We find that the increase in schooling led to a sharp reduction in the agricultural labor supply by equipping younger cohorts with skills more valued out of agriculture. Interpreted through an equilibrium model of frictional labor reallocation, these facts imply that human capital growth accounts for about 20% of the global decline in agricultural employment

Human Capital and Structural Change

What explains labor reallocation out of agriculture? We propose an accounting framework that leverages observable variation across birth cohorts to study the role of human capital accumulation. We model a dynamic overlapping generations economy where heterogeneous individuals choose whether to stay in or move out of agriculture, subject to mobility frictions. The model shows analytically that labor reallocation within- and across-cohorts pins down the relative role of human capital vs. sectoral prices/productivities in labor reallocation. We apply the framework to micro data from 52 countries. We document novel empirical patterns on labor reallocation by cohort and use them, through the lens of our model, to discipline the size of mobility frictions and show two results: (i) human capital explains one third of labor reallocation, on average; but (ii) it has a minor role in explaining why some countries have faster reallocation than others. Furthermore, we use years of schooling as a direct measure of human capital to validate our main approach and we exploit a large-scale school construction program in Indonesia as a natural experiment to study the effects of an exogenous increase in human capital. We show that the program led to labor reallocation out of agriculture

The human side of structural transformation

We document that nearly half of the global decline in agricultural employment was driven by new cohorts entering the labor market. A new dataset of policy reforms supports an interpretation of these cohort effects as human capital. Using a model of frictional labor reallocation, we conclude that human capital growth led to a sharp decline in the agricultural labor supply, accounting, at fixed prices, for 40 percent of the decrease in agricultural employment. This aggregate effect is halved in general equilibrium and it reflects the role of human capital as both a mediating factor and an independent driver of labor reallocation. (JEL J22, J24, J43, L16, O13, O14, Q10

Achieving Scale Collectively

This paper argues that rental market interactions allow small firms to increase their effective scale and mechanize production, even when each individual firm would be too small to invest in expensive machines. We conduct a novel survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. Our results show that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. We also show that  the rental market shapes the effectiveness of policies to foster mechanization, such as subsidies to purchase machines

Life-cycle human capital accumulation across countries: lessons from US immigrants

This paper assesses cross-country variation in life-cycle human capital accumulation, using new evidence from US immigrants. The returns to experience accumulated in an immigrant’s birth country before migrating are positively correlated with birth-country GDP per capita. To understand this fact, we build a model of life-cycle human capital accumulation that features three potential theories: differential human capital accumulation, differential selection, and differential skill loss.We use new data on the characteristics of immigrants and nonmigrants from a large set of countries to distinguish between these theories. The most likely theory is that immigrants from poor countries accumulate less human capital in their birth countries before migrating. Our findings imply that life-cycle human capital stocks are much larger in rich countries

Life cycle wage growth across countries

This paper documents how life cycle wage growth varies across countries. We harmonize repeated cross-sectional surveys from a set of countries of all income levels and then measure how wages rise with potential experience. Our main finding is that experience-wage profiles are on average twice as steep in rich countries as in poor countries. In addition, more educated workers have steeper profiles than the less educated; this accounts for around one-third of cross-country differences in aggregate profiles. Our findings are consistent with theories in which workers in poor countries accumulate less human capital or face greater search frictions over the life cycle

Achieving Scale Collectively

This paper argues that rental market interactions allow small firms to increase their effective scale and mechanize production, even when each individual firm would be too small to invest in expensive machines. We conduct a novel survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. Our results show that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. We also show that  the rental market shapes the effectiveness of policies to foster mechanization, such as subsidies to purchase machines

Searching for Customers, Finding Pollution

In developing countries, most manufacturing firms are small and located in high-density urban areas, often near congested streets. To study the determinants and implications of this location choice, we collect a novel firm survey and detailed air pollution measurements within Ugandan cities. We find that firms locate on the busiest roads searching for customer visibility, but in doing so they expose their workers to substantial pollution. This sorting pattern increases profits, but with severe health costs: if firms were randomly located across space, annual profits would decrease by $195 for the average firm, but its workers’ life expectancy would increase by two months.                                                                                                                                                                                                                                                                                                                                                        &nbsp

Pollution in Ugandan Cities: Do Managers Avoid it or Adapt in Place?

Developing countries suffer from rising urban pollution levels, with associated negative effects on health and worker productivity. We study how managers in developing country cities cope with the polluted environment. We collect high resolution pollution measurements within Ugandan cities and match these with a novel firm survey. We find that firms locate in close proximity to major polluted roads, which bundle a bad (exposure to pollution) with a good (market demand). Higher ability managers do not avoid polluted areas, but better adapt to the pollution by protecting their workers through both provision of equipment and exibility in work schedules