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Begin New Search Topic Human Capital Author Lance Lochner

1. Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited

Author:
Audra J. Bowlus, Lance Lochner, Chris Robinson, and Edna Suleymanoglu
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
The canonical supply–demand model of the wage returns to skill has been extremely influential; however, it has faced several important challenges. Several studies show that the standard approach sometimes produces theoretically wrong-signed elasticities of substitution, yields counterintuitive paths for skill-biased technical change (SBTC), and does not account for the observed deviations in college premia for younger vs. older workers. This paper shows that these failings can be explained by mis-measurement of relative skill prices and supplies (based on standard demographic composition-adjustments) and by inadequate ad hoc functional form assumptions about the path for SBTC. Improved estimates of skill prices and supplies that account for variation in skill across cohorts within narrowly defined groups help explain the observed deviation in the college premium for younger vs. older workers, even with perfect substitutability across age. Re-estimating the model with these prices and supplies produces a good fit with better out-of-sample prediction and robustly yields positive elasticities of substitution between high and low skill workers. The estimates suggest greater substitutability across skill and a more modest role for SBTC. We implement two new approaches to modelling SBTC. First, we study the extent to which recessions induce jumps or trend-adjustments in skill bias and find evidence that both features are important (but differ across recessions). Second, we link SBTC to direct measures of information technology investment expenditures and show that these measures explain the evolution of skill bias quite well. Together, these approaches suggest that the ad hoc assumptions for SBTC previously employed in the literature are too crude to fit the data well, leading to the incorrect conclusion that SBTC slowed during the early-1990s and under-estimates of the elasticity of substitution between high and low skill workers.
Topic:
Economics, Human Capital, Supply, Skills, and Wages
Political Geography:
Global Focus

2. Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

Author:
Elizabeth Caucutt, Lance Lochner, Joseph Mullins, and Youngmin Park
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes.
Topic:
Economics, Labor Issues, Children, Human Capital, Economic Mobility, Credit, Productivity, Skilled Labor, and Price
Political Geography:
Global Focus

3. Returns to Skill and the Evolution of Skills for Older Men

Author:
Qian Liu, Lance Lochner, Youngmin Park, and Youngki Shin
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
This paper shows that repeated cross-section data with multiple skill measures (one continuous and repeated) available each period are sufficient to nonparametrically identify the evolution of skill returns and cross-sectional skill distributions. With panel data and the same available measurements, the dynamics of skills can also be identified. Our identification strategy motivates a multi-step nonparametric estimation strategy. We further show that if any continuous repeated measurement is shown to be linear in skills, a much simpler GMM estimator can be used. Using HRS data on men ages 52+ from 1996-2016, we show that one of the available (continuous and repeated) skill measures is linear in skills and implement our GMM estimation approach. Our estimates suggest that the returns to skill were fairly stable from the mid-1990s to the Great Recession, rising thereafter. We document considerable differences in skills and lifecycle skill profiles over ages 52–70 across cohorts, with more recent cohorts possessing lower skills in their mid-50s but experiencing much weaker skill declines with age. We also document skill differences by education and race, which are stable across ages and explain roughly one-third and one-half, respectively, of the corresponding differences in wages. We observe substantial differences in skills for men in their mid-50s choosing to retire at different ages, but no clear evidence of sharp declines in skills surrounding retirement ages. Finally, we show that individual fixed effects account for more than a third of all skill variation at age 60, with considerable persistence in year-to-year skill innovations.
Topic:
Global Recession, Labor Issues, Human Capital, Men, Productivity, Skilled Labor, and Retirement
Political Geography:
Global Focus

4. The EITC and Maternal Time Use: More Time Working and Less Time with Kids?

Author:
Jacob Bastian and Lance Lochner
Publication Date:
08-2020
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
Parents spend considerable time and resources investing in their children's development. Given evidence that the Earned Income Tax Credit (EITC) aects maternal labor supply, we investigate how the EITC aects a broad array of time-use activities, focusing on the amount and nature of time spent with children. Using 2003-2018 time-use data, we nd that federal and state EITC expansions increase maternal work time, which reduces time devoted to home production, leisure, and time with children. However, for children of all ages, almost none of the reduction comes from time devoted to investment activities, such as active learning and development activities.
Topic:
Economics, Labor Issues, Children, Women, Income Inequality, Tax Systems, Human Capital, Family, and Productivity
Political Geography:
United States

5. Parental Support, Savings and Student Loan Repayment

Author:
Lance Lochner, Todd Stinebrickner, and Utku Suleymanoglu
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
Centre for Human Capital and Productivity (CHCP), Western University
Abstract:
Using unique survey and administrative data from the Canada Student Loans Program, we document that parental support and personal savings substantially lower student loan repayment problems. We develop a theoretical model for studying student borrowing and repayment in the presence of risky labor market outcomes, moral hazard, and costly earnings verification. This framework demonstrates that non-monetary costs of applying for income-based repayment assistance are critical to understanding why resources other than earnings lead to greater repayment. We further show that eliminating these non-monetary costs may be inefficient and lead to undesirable redistribution. Empirically, we demonstrate that expanding Canada’s income-based Repayment Assistance Plan to automatically cover all borrowers would likely reduce program revenue by nearly one-half over early years of repayment. Finally, we show how student loan programs can be more efficiently designed to address heterogeneity in parental transfers in the presence of non-monetary earnings verification costs and moral hazard.
Topic:
Debt, Economics, Human Capital, Higher Education, Productivity, and Student Loans
Political Geography:
United States and Canada