Human capital accumulation and the long-term effects of temporary sectoral shocks

• Department of Economics

This event features a discussion by Ekaterina Gurkova (UCLA).

This paper investigates the impact of temporary sectoral shocks on human capital accumulation and introduces a structural model to quantify their long-term general equilibrium effects.

This paper uses Spain’s economic boom (1995-2007) as a case study, which represented a positive labour demand shock in construction and low-skill services, and led to a persistent decline in educational attainment among young workers.

To evaluate the general equilibrium implications of this shock during the transition, the author constructs a quantitative lifecycle model in which workers endogenously choose education and sectoral employment under imperfect human capital transferability.

The model reproduces the observed decline in educational attainment and sluggish labour reallocation following the boom. The transition, driven primarily by new cohorts, features a persistent decline in aggregate productivity: convergence to the steady state takes 50 years, with an average productivity loss of 0.8% over the transition.

The findings demonstrate that positive sectoral shocks can generate adverse long-run aggregate outcomes and substantial distributional effects— cohorts born during the boom experience lifetime earnings gains of nearly 10%, while those born before or after incur losses—highlighting the scope for policy interventions.