Human Capital Depreciation

Coauthors: Michael Dinerstein and Rigissa Megalokonomou

Human capital can depreciate over time if skills are unused, and such depreciation may be a primary cause of structural duration dependence in non-employment. But measuring human capital depreciation is challenging, as worker skills or output are difficult to measure and less productive workers are more likely to spend time in non-employment. We overcome these challenges by using new data on teachers’ assignments and their students’ outcomes. In Greece, all education graduates are guaranteed public sector teaching positions; however, positions are typically not immediately available for new graduates. Teachers are thus quasirandomly assigned to waitlists by degree conferral date, generating variation in time spent without formal employment. We find significant losses to output, as a one year increase in time without formal employment, and the associated forgone experience, leads to a 0.10 student standard deviation (2.2%) decline in students’ average test scores in our micro empirical specification and a 0.11 student standard deviation (4.0%) decline in a district specification. To understand what channel drives this loss, we control for experience levels and isolate the effect of depreciation. We find that skill depreciation explains the full effect.