Misallocation of talent, teachers' human capital, and development in Brazil

Abstract

In this study, we investigate the allocation of talent in an economy where teachers play a critical role in developing the human capital of the workforce. To this end, we formulate a Roy model with externality in the occupational choice, as the quantity and quality of teachers are key determinants of workers’ human capital. Our analysis suggests that when individuals with greater abilities opt for teaching careers, the entire workforce benefits. However, frictions in the labor and educational goods markets may lead to a suboptimal allocation of talent and hinder economic growth and development. Our model is calibrated to the Brazilian economy, and our findings reveal a negative correlation between frictions in the teacher’s occupation and per capita output in the Brazilian states. Our results indicate that eliminating friction in the labor market could result in a 16.94% increase in Brazilian income.