Productivity, structural change, and skills dynamics: Evidence from a half-century analysis

This paper explores the contribution of structural change and the skill upgrading of the labour force to productivity. Our growth decomposition based on an original database we built for Tunisia and Turkey shows that productivity is mainly explained by intra-industry changes during the import substitution period. Second, we show that this productivity increase has been driven by the reallocation of higher-educated labour between sectors rather than the absorption of highly educated workers within sectors. Based on an instrumental variable regression setting, we also find evidence that the change in the share of high-educated workers had a causal impact on productivity levels. Moreover, when we exclude the government sector, the overall skills upgrading is negatively associated with productivity growth, suggesting a downward sloping return to educated labour demand over time.