NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating the Technology of Children's Skill Formation

Francesco Agostinelli, Matthew Wiswall

NBER Working Paper No. 22442
Issued in July 2016
NBER Program(s):CH

We develop a new estimator for the process of children's skill formation in which children's skills endogenously develop according to a dynamic latent factor structure. Rather than assuming skills are measured perfectly by a particular measure, we accommodate the variety of skills measures used in practice and allow latent skills to be measured with error using a system of arbitrarily located and scaled measures. For commonly estimated production technologies, which already have a known location and scale, we prove non-parametric identification of the primitive production function parameters. We treat the parameters of the measurement model as "nuisance" parameters and use transformations of moments of the measurement data to eliminate them, analogous to the data transformations used to eliminate fixed effects with panel data. We develop additional, empirically grounded, restrictions on the measurement process that allow identification of more general production technologies, including those exhibiting Hicks neutral total factor productivity (TFP) dynamics and non-constant returns to scale.

We use our identification results to develop a sequential estimation algorithm for the joint dynamic process of investment and skill development, correcting for the biases due to measurement error in skills and investment. Using data for the United States, we estimate the technology of skill formation, the process of parental investments in children, and the adult distribution of completed schooling and earnings, allowing the production technology and investment process to freely vary as the child ages. Our estimates of high TFP and increasing returns to scale at early ages indicate that investments are particularly productive at these ages. We find that the marginal productivity of early investments is substantially higher for children with lower existing skills, suggesting the optimal targeting of interventions to disadvantaged children. Our estimates of the dynamic process of investment and skill development allow us to estimate heterogeneous treatment effects of policy interventions. We show that even a modest transfer of family income to families at ages 5-6 would substantially increase children's skills, completed schooling, and adult earnings, with the effects largest for low income families.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Supplementary materials for this paper:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22442

Users who downloaded this paper also downloaded* these:
Agostinelli and Wiswall w22441 Identification of Dynamic Latent Factor Models: The Implications of Re-Normalization in a Model of Child Development
Attanasio, Meghir, and Nix w21740 Human Capital Development and Parental Investment in India
Gilleskie, Han, and Norton w22430 Disentangling the Contemporaneous and Dynamic Effects of Human and Health Capital on Wages over the Life Cycle
Maestas, Mullen, and Powell w22452 The Effect of Population Aging on Economic Growth, the Labor Force and Productivity
Mullen and Staubli w22419 Disability Benefit Generosity and Labor Force Withdrawal
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us