Human Capital Depreciation

Abstract

Human capital can depreciate if skills are unused. But estimating human capital depreciation is challenging, as worker skills are difficult to measure and less productive workers are more likely to spend time in non-employment. We overcome these challenges with new administrative data on teachers' assignments and their students' outcomes, and quasi-random variation from the teacher assignment process in Greece. We find significant losses to output, as a one-year increase in time without formal employment lowers students' test scores by 0.09 standard deviations. Using a simple production model, we estimate a skill depreciation rate of 4.3% and experience returns of 6.8%.

The Minimum Wage and Occupational Mobility

“…Quantitatively, the model produces a good match to the empirical wage distribution.27 The upper bound is a technical assumption that guarantees the steady-state existence.28 Because workers reset their initial productivity, there is no task-specific human capital that can be transferred. This assumption is justified for the younger, less-educated workers:Weber (2008) show that less-educated workers have fast human capital depreciation; andDinerstein et al (2020) show that when task-specific human capital is not in use, it tends to depreciate. These results imply that only part of the task-specific human capital is transferred for low-ability workers, because the workers "forget" about the skills learned in the previous occupation.29Moscarini (2005) has a detailed discussion of the microfoundation of Nash-bargaining wage setting with on-thejob search.…”

Prospects for the Uk Economy

“…We may expect demand to be suppressed by a period of reduced income for a substantial number of people (as well as additional precautionary saving by those worried about losing their jobs and weaker wage growth in a slacker labour market) but we may also expect to see reduced labour productivity as a result of reduced investment and the re-emergence of long-term unemployment: see research by Rothstein (2019) and Tumino (2015) on employment prospect scarring, and Crafts (1985) on the permanent unemployment effects resulting from the loss of skills during 1930s unemployment. Recent research from the US National Bureau of Economic Research (Dinerstein, Megalokonomou and Yannelis, 2020) has estimated a 'skill depreciation rate' of 4.3 per cent a year. Minimising these effects should be a central part of government policy in the recovery from the Covid-19 pandemic.…”

Wages and the Value of Nonemployment

“…We complement studies of UI effects on search behavior and reemployment wages of unemployed workers (Feldstein and Poterba, 1984;Katz and Meyer, 1990;Krueger and Mueller, 2016;Schmieder et al, 2016;Le Barbanchon et al, 2017;Nekoei and Weber, 2017). Our focus on employed workers isolates the bargaining channel, whereas the unemployed are subject to multiple, perhaps offsetting, non-bargaining wage effects, such as skill depreciation (Dinerstein et al, 2019), job composition (McCall, 1970;Nekoei and Weber, 2017), or stigma (Kroft et al, 2013(Kroft et al, , 2016. Second, much of the literature focuses on benefit duration reforms, hence harder to price and map back into our model, and affecting only long spells.…”