Human Capital Misallocation: Implications and Contributing Factors

The misallocation of human capital has significant implications for total factor productivity, output, and overall well-being, as noted in the works of Agénor (2017) and Bandyopadhyay et al. (2019). Furthermore, it can shape future human capital supply by influencing the academic aspirations and school choices of children. Goldin and Katz (2008) observed a significant increase in the proportion of Harvard undergraduate students employed in the finance sector since 1970, while Friedman-Sokuler and Justman (2016) noted the underrepresentation of girls in STEM subjects. To identify relevant factors that contribute to human capital misallocation, numerous studies have analyzed institutional factors such as lack of material incentives (Acemoglu, 1995; Lockwood et al., 2017; Wu, 2017), imperfect factor markets (D'Erasmo et al., 2014; Abdulla, 2019), and weak social security (Corneo, 2013; Benhabib and Hager, 2021). Additionally, non-institutional factors, such as group bias based on gender, race, or ethnicity, as highlighted by Gradstein (2019), also contribute to the misallocation of human capital.