Three Essays on Public Policy, Human Capital, and Economic Growth: Theory and Evidence

Abstract

This dissertation presents three essays investigating the effect of public policies on human capital accumulation and economic growth. I first investigate the optimal quantity and quality of teachers in the framework of dynamic general equilibrium OLG model. The government hires teachers while constrained by the teachers' collective bargaining agreement. In the process of endogenous growth, the optimal trade-off between the quantity and quality of teachers moves in the direction of the former. The number of teachers hired will grow over time while their relative human capital attainment will fall. This evolution of human capital accumulation is accompanied by increasing inequality, within the group of college educated workers in particular.

In the second essay, I empirically investigate the self-selection of first year teachers into teaching positions at union and non-union schools, the main difference being the entry and dismissal barriers of teachers' unions. In a Bayesian framework with Markov Chain Monte Carlo methods, I estimate how much of the propensity to remain in teaching can be attributed to the effect of teachers' unions rather than the characteristics of individuals who tend to work in unionized schools. With the use of the counterfactual, I find that while teachers' unions do lower the attrition rate, most of the difference in attrition rates should be attributed to the self-selection into the teaching occupation and not to the barriers to dismissal unions provide.

The third essay analyzes the implications of pay-as-you-go (PAYG) social security system for human capital investment, economic growth and income distribution when individuals' longevities are dependent on their human capital attainment. While PAYG pensions encourage human capital investment at a cost of lower growth in the short-run, it results in increased life expectancy of the subsequent generations, providing additional incentive to save for retirement. Thus, in the long-run, implementing PAYG social security causes the stock of human capital to grow; savings will increase due to the dynamic externality, thereby so will the aggregate output.