Depreciation of human capital: a sectoral analysis in OECD countries

Abstract

Purpose

The purpose of this paper is to investigate which sectors are more vulnerable to human capital depreciation, with an emphasis on potential differences in skills and in ICT intensities.

Design/methodology/approach

The authors estimate an extended Mincerian earnings equation based on Neuman and Weiss’s (1995) model using the EU-KLEMS international database for 15 sectors for the period from 1980 to 2005. The authors also test structural ruptures in earnings and human capital depreciation in the labor market per decade controlling by technological intensity.

Findings

Human capital depreciation ranges from 1 to 6 percent. It is mainly significant in skill-intensive sectors regardless of the sector’s technological intensity. The analysis of structural breaks shows that human capital value indeed changed from decade to decade. It even appreciated in low skill-intensive sectors in the 1980s and in the high skill-intensive during the 1990s. Appreciation though, was mainly skill-biased.

Research limitations/implications

Information about on-the-job-training and non-cognitive skills that can also affect human capital depreciation are not included due to lack of data.

Practical implications

To prevent human capital from depreciating in particular sectors and periods educational systems should provide the tools for ongoing lifelong learning at all skills levels. Education is subject to dynamic effects that should be addressed to increase the potential benefits of technological change.

Originality/value

First, instead of using cross-section analysis which is considered to be a pitfall in studying the depreciation of knowledge, the authors observe its dynamic on a longitudinal basis. Second, the international macro-sectoral approach goes beyond limited micro-sectoral analysis in certain countries.

Citation

Lentini, V. and Gimenez, G. (2019), "Depreciation of human capital: a sectoral analysis in OECD countries", International Journal of Manpower, Vol. 40 No. 7, pp. 1254-1272. https://doi.org/10.1108/IJM-07-2018-0207