The Impact of Human Capital Components on Productivity of Private Sector Employees: Micro-Data Evidence

Abstract

The relationship between human capital and labor productivity is always important for economists. Considering the relationship between these two will also be remarkable in microeconomic studies. Meanwhile, the impact of different dimensions of human capital on labor productivity can be a measure of actual effect of human capital on productivity. The aim of this paper is to examine the effects of various dimensions of human capital (education, health, and experience), on labor productivity based on individual characteristics in Iranian economy. We use micro data (Cost–Income Survey of Urban Areas - 2013) and estimation of Quantile Regression (QR) econometric technique. For this purpose, net income (wage and salary) for employment in private sector is used as proxy of labor productivity. Our results show that in different quantiles, all three dimensions of human capital have a positive and significant effect on productivity of labor force employed in Iranian private sector. Meanwhile, in different quantiles, health indicators of human capital are more volatile than other dimensions of human capital, i.e. education and experience. So, in lower quantiles (Ql), the response of labor productivity to health indicators is more than higher quantiles (Qh). Because of that, any kind of health shock may have a greater effect on labor productivity in lower-income groups. This result shows the importance of health capital in social security, insurance and health systems and reminds us to improve the productivity of working people by means of better health capital