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 examines how to measure welfare-relevant growth in economies undergoing structural transformation, where preferences are non-homothetic and evolve over time. In such settings, persistent changes in relative prices and expenditure patterns can lead to aggregation biases in standard output measures. We address this issue within a continuous time general equilibrium model that incorporates structural reallocation, sector-specific productivity trends, and investment-specific technological change. We compare two welfare-based measures of real income growth: a current-base equivalent variation measure and a chained Fisher-Shell index. Our analysis shows that the chained Fisher-Shell index yields a welfare-consistent measure of real GDP growth and coincides with a chained Divisia index. In contrast, the current-base index introduces time-dependent biases that distort the evaluation of past growth. Beyond its theoretical contribution, the paper delivers a key practical result: the growth rates and nominal expenditure shares of major expenditure components are sufficient statistics to construct a welfare-based output index.
with Selim Elbadri
We study how structural transformation shapes sectoral and aggregate productivity dynamics in advanced economies. Persistent productivity gaps between manufacturing and services induce a shift of production resources toward services, generating a compositional slowdown in aggregate productivity. We show that this sectoral reallocation also alters incentives to innovate across sectors, affecting the evolution of sectoral productivity. We assemble a new dataset for the United States (1963–2023) combining sectoral production, employment, and R&D inputs and outputs. The data reveal a divergence in sectoral allocations: production labor shifts from manufacturing to non–research-intensive services, whereas research labor moves from manufacturing toward research-intensive services. To interpret these patterns, we develop a general equilibrium model of structural transformation and directed technical change with endogenous sectoral allocations of labor and innovation, heterogeneous and time-varying markups, and cross-sector knowledge spillovers. In the model, innovation flows toward sectors expanding in size or relative price, while income effects and relative prices govern production reallocation. Calibrated to match key features of U.S. structural change, the model shows that sector-specific markups and knowledge spillovers are central drivers of the observed divergence. Counterfactual exercises imply that, absent structural change in production, aggregate productivity would be 12 percentage points higher, with income effects accounting for half of this gap. Knowledge spillovers from raise productivity by 6 percentage points, whereas heterogeneous markups reduce it by 21 percentage points.
"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.