The literature of human capital models of economic growth faces serious measurement and estimation
issues and Glaeser and Saiz (2003) and Gronau (2003) reflect a shift to paying more attention to
identification problems. This paper examines the idea that the human capital-growth nexus is spurious
due to efficiency wages. Bewley (1999b) argues that efficiency wages elicit higher productivity. The
paper derives new estimates of human capital for the Australian BLS data, utilises dual growth
accounting and relies on an efficiency wages asymmetry to test the efficiency wages hypothesis against
that of human capital. It also revisits the debate on alternative models of the human capital-economic
growth relation. The results show that the efficiency wages hypothesis is not consistent with the
evidence and both the level and growth of human capital are key determinants of economic growth.
Paper presented to the 33rd Conference of Economists, University of Sydney, 27-30 September