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American Economic Review Vol. 112 No. 11 2022

Human Capital Depreciation and Returns to Experience

Michael Dinerstein1; Rigissa Megalokonomou2; Constantine Yannelis3

1 Kenneth C. Griffin Department of Economics, University of Chicago, NBER, and CESifo (email: ) · 2 School of Economics, University of Queensland, CESifo, and Monash University (email: ) · 3 Booth School of Business, University of Chicago, and NBER (email: )

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 nonemployment. 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 0.05 standard deviations. Using a simple production model, we estimate a skill depreciation rate of 4.3 percent and experience returns of 6.8 percent.

DOI
10.1257/aer.20201571
Volume
112
Issue
11
Pages
3725-3762
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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