with Francisco (Paco) Buera, Joseph Kaboski, and Richard Rogerson
The Review of Economic Studies
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Using a broad panel of advanced economies, we document that increases in GDP per capita are associated with a systematic shift in the composition of value added to sectors that are intensive in high-skill labor, a process we label as skill-biased structural change. It follows that further development in these economies leads to an increase in the relative demand for skilled labor. We develop a quantitative two-sector model of this process as a laboratory to assess the sources of the rise of the skill premium in the US and a set of ten other advanced economies, over the period 1977 to 2005. For the US, we find that the sector-specific skill-neutral component of technical change accounts for 18-24% of the overall increase of the skill premium due to technical change, and that the mechanism through which this component of technical change affects the skill premium is via skill-biased structural change.
This paper examines how occupational structure shapes cross-country differences in human capital stocks. Using harmonized microdata, I document that cognitive occupations are associated with higher schooling and higher returns to education and experience, underscoring their greater skill intensity. I then develop a dynamic model of schooling, on-the-job training, and occupational choice, calibrated and structurally estimated with data from Brazil and the United States. The results show that while average human capital in cognitive occupations in the U.S. is only about 10 percent higher than in Brazil, the gap widens to nearly threefold in routine jobs. A gap decomposition attributes 25 percent of the U.S.–Brazil gap to differences in the occupational structure, 30 percent to the higher human capital embodied in U.S. routine work, and the remainder to relative occupational efficiency and cognitive skill differences.
with Omar Licandro
This paper studies how to accurately measure welfare-relevant growth in the presence of structural transformation, focusing on the role of chained quantity indices. Using a structural transformation model calibrated to the U.S. economy since 1980, we compare two approaches grounded in the Fisher-Shell principle: a current-base equivalent variation measure and the chained Fisher-Shell index. We show that the chained index aligns with the Divisia index and consistently tracks welfare gains along the balanced growth path, while fixed-base indices misrepresent historical growth. These distortions arise from evaluating income using a single base preference order in a context of evolving preferences and relative prices. Our findings reinforce the theoretical justification for using chained indices in national accounts, not only for statistical accuracy but also for consistency with welfare measurement in dynamic economies. We conclude that structural transformation motivates and legitimises the use of chained indices to measure real income growth.
with Selim Elbadri
We propose a novel explanation for secular stagnation that is linked to the process of structural transformation in post-industrial economies. We merge several data sources on sectoral production and innovation activities to document that while production workers move out of manufacturing and into non-research-intensive services, researchers move out of manufacturing and into research-intensive services, exhibiting divergent paths. We build a general equilibrium model of structural transformation and directed technical change where the sectoral allocation of productive and innovative resources is determined endogenously. We enrich this framework by allowing for heterogeneous, time-varying markups across sectors. The model mimics key features of structural change in employment, expenditure, and innovation activity, including the divergent paths in production and innovation. We find that in the absence of structural change and the prevailing demographic trends, TFP would have grown by 62% between 1947 and 2010 in the US, as opposed to the observed TFP growth of 30%, with 87% of the slowdown due to structural change in production and innovation, and the remaining 13% due to demographic forces.
"Monetary Policy with Declining Deficits: Theory and an Application to Recent Argentine Monetary Policy"
with Rody Manuelli
St. Louis Federal Reserve Review, Fourth Quarter, 2017.
with Rody Manuelli
In this paper we develop a continuous time stochastic growth model that is suitable for studying the impact of natural disasters on the short run and long run growth rate of an economy. We find that the growth effects of a natural disaster depend in complicated ways on the details of expected foreign disaster aid and the existence of catastrophe insurance markets. We show that aid can have an influence on investments in prevention and mitigation activities and can delay the recovery from a natural disaster strike.