ESSAYS ON HUMAN CAPITAL AND ... - Stanford University

[Pages:114]ESSAYS ON HUMAN CAPITAL AND ENTREPRENEURSHIP

A DISSERTATION SUBMITTED TO THE GRADUATE SCHOOL OF BUSINESS

AND THE COMMITTEE ON GRADUATE STUDIES OF STANFORD UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF

DOCTOR OF PHILOSOPHY

James (Jianzhang) Liang Candidate November 2011

? 2011 by James Liang. All Rights Reserved. Re-distributed by Stanford University under license with the author.

This work is licensed under a Creative Commons AttributionNoncommercial 3.0 United States License. This dissertation is online at:

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I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a dissertation for the degree of Doctor of Philosophy.

Edward Lazear, Primary Adviser I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a dissertation for the degree of Doctor of Philosophy.

D Roberts I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a dissertation for the degree of Doctor of Philosophy.

Kathryn Shaw

Approved for the Stanford University Committee on Graduate Studies. Patricia J. Gumport, Vice Provost Graduate Education

This signature page was generated electronically upon submission of this dissertation in electronic format. An original signed hard copy of the signature page is on file in University Archives.

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Abstract

This thesis analyzes economic models and empirical evidence on the topic of the evolution of labor market and the development of human capital in a rapidly developing country.

The first chapter develops a theoretical model of evolving skills and wages when there is an exogenous increase in return to skill. The model predicts that recent graduates' wages may decrease in the medium and long run even as the demand for skilled workers increases.

The second chapter provides empirical evidence that supports the theory developed in the first chapter. The first half of the chapter analyzes a recent China dataset, and finds that while wages for recent graduates decreased, wages for the experienced graduates increased. The second half of the chapter examines evidence from other developing countries at similar stages of development.

The third chapter develops a model which provides a mechanism of rising return to skill after trade liberalization. By trading with a developed country, the developing country can make its high-skill workers more productive by working with foreign high-skill trainers, or by using cheaper skill-intensive foreign inputs.

The fourth chapter develops a model of technology catch-up and its impact on the return to skill in a developing country. The opportunity for technology catch-up increases the demand for high-skill workers and drives up the return to skill. Moreover, if the new technologies acquired by the developing country are skill-intensive, the return to skill will increase further.

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Acknowledgments

I am very grateful to my advisor, Edward Lazear for his continuous guidance and support on the project. I thank John Roberts, Kathryn Shaw, Nick Bloom, Claire Lim, and Gary Becker for their extremely helpful comments. I also thank all the presentation participants for their feedback and suggestions.

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Contents

Abstract

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Acknowledgments

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1 Evolution of the Labor Market in a Rapidly Developing Economy 1 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1.1 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . 3 1.2 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Steady State Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3.1 Impact on Labor Market with More Foreign Firms . . . . . . 8 1.3.2 Impact on Existing Firms . . . . . . . . . . . . . . . . . . . . 9 1.4 Dynamics and Short-Term Effects . . . . . . . . . . . . . . . . . . . . 10 1.4.1 A Numerical Solution . . . . . . . . . . . . . . . . . . . . . . . 12 1.5 Policy Simulations Using the Model . . . . . . . . . . . . . . . . . . . 16 1.5.1 Policies to Subsidize College Education . . . . . . . . . . . . . 16 1.5.2 Too Many Graduates in China? . . . . . . . . . . . . . . . . . 20 1.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.7 Appendix: Proofs in this chapter . . . . . . . . . . . . . . . . . . . . 23

2 Empirical Analysis

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2.1 Matching with Recent Wage Patterns in China . . . . . . . . . . . . . 32

2.1.1 Dataset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

2.1.2 Wage Regression . . . . . . . . . . . . . . . . . . . . . . . . . 35

2.1.3 Age-Earnings Profile of Different Types of Colleges . . . . . . 38

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2.1.4 Inequality among the graduates . . . . . . . . . . . . . . . . . 38 2.1.5 Earnings profiles for Males and Females . . . . . . . . . . . . . 41 2.1.6 Wage Profiles by Industry . . . . . . . . . . . . . . . . . . . . 45 2.1.7 Wage Profiles by Major . . . . . . . . . . . . . . . . . . . . . 46 2.1.8 Comparing to the Simulation Results . . . . . . . . . . . . . . 46 2.1.9 Potential Selection Bias . . . . . . . . . . . . . . . . . . . . . 50 2.2 Evidence from Other Rapidly Developing Countries . . . . . . . . . . 51 2.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

3 Human Capital and Trade

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3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

3.2 Related Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

3.3 Theoretical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

3.3.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

3.3.2 Solution and Comparative Statics . . . . . . . . . . . . . . . . 62

3.3.3 The Effect of Tariffs . . . . . . . . . . . . . . . . . . . . . . . 66

3.3.4 Endogenizing M and H . . . . . . . . . . . . . . . . . . . . . . 68

3.3.5 Simulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

3.4 Evidence from other developing Countries . . . . . . . . . . . . . . . 77

3.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

3.6 Appendix: Proofs in this Chapter . . . . . . . . . . . . . . . . . . . . 81

4 Human Capital and Technology Catch-up

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4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

4.2 Theoretical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

4.2.1 Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

4.2.2 Solving the model . . . . . . . . . . . . . . . . . . . . . . . . . 87

4.2.3 The Steady State and Transition Dynamics . . . . . . . . . . 92

4.2.4 Balanced Growth Path . . . . . . . . . . . . . . . . . . . . . . 94

4.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

4.4 Appendix: Proofs in this Chapter . . . . . . . . . . . . . . . . . . . . 96

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5 Conclusion

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