A structural model of human capital and manufacturing sector change

The relationship between manufacturing job losses per capita, changes in manufacturing earnings per worker, and human capital investment is examined empirically at the level of nearly 3,000 U.S. counties over the period 1980-90. Hypotheses tested address the questions of whether the sectoral composition of the local economy (in this case with an emphasis on manufacturing) affects per worker earnings growth and investment in human capital, and whether investment in human capital in turn affects the economy's sectoral composition and earnings growth. The simultaneous equations estimation reveals direct and indirect effects of initial levels of the endogenous variables on their change during the 1980s. These effects are compared with comprehensive effects obtained using a reduced form regression. (JEL O10).