Human Capital

Consider the following variant of the production function that allows for human capital

Exercise 3. Human capital Consider the following variant of the production function that allows for human capital Y = AK1/3(el) 2/3. In this equation, & represents the number of workers in the country while e represents the average years of education. Assume that the average years of education of the U.S. is five times larger than the years of education in Kenya. Using the data from the previous table, calculate again the predicted values of GDP per capita y and the TFP needed to fit the data. Average years Predicted Implied TFP of education to match data United States Kenya 0.2 Is the implied TFP bigger or smaller than in the previous exercise? Why? What is the wage of U.S. workers relative to the wage in Kenya? o Hint: To answer this question assume that firms at each country maximize the following profits: maxx,, II; = A;K /(e;L) - wil - rik, where i E {US, Kenya} Human Capital Consider the following variant of the production function that allows for human capital Y = AK+/-(el)./-. In this equation, L represents the number of workers in the country while e represents the average years of education. Assume that the average years of education of the U.S. is five times larger than the years of education in Kenya. Using the data from the previous table, calculate again the predicted values of GDP per capita Oy and the TFP needed to fit the data. . Is the implied TFP bigger or smaller than in the previous exercise? Why? . What is the wage of U.S. workers relative to the wage in Kenya? o Hint:To answer this question assume that firms at each country maximize the following profits: max:,; n= = A=K1/3(eil)2/3 - wil - rik, where i e (US, Kenya} Previous Question Table: In 2014 dollars Relative to the U.S. values (U.S. = 1) (1) (2) (3) (4) Per capita (5) predicted y* (6) Implied Capital Per Capital GDP TFP to match per capita per data A* person GDP person United 141,841 51,958 1 1 1 1 States Kenya 4,686 2,971 0.033 0.057 0.321 0.178