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Over-education for the rich, under-education for the poor: A search-theoretic microfoundation

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  • Charlot, Olivier
  • Decreuse, Bruno

Abstract

This paper studies the efficiency of educational choices in a two sector/two schooling level matching model of the labor market where a continuum of heterogenous workers allocates itself between sectors depending on their decision to invest in education. Individuals differ in working ability and schooling cost, the search market is segmented by education, and there is free entry of new firms in each sector. Self-selection in education causes composition effects in the distribution of skills across sectors. This in turn modifies the intensity of job creation, implying the private and social returns to schooling always differ. Provided that ability and schooling cost are not too positively correlated, agents with large schooling costs -- the 'poor' -- underinvest in education, while there is overinvestment among the low schooling cost individuals -- the 'rich'. We also show that education should be more taxed than subsidized when the Hosios condition holds.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 6 (December)
Pages: 886-896

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Handle: RePEc:eee:labeco:v:17:y:2010:i:6:p:886-896

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Web page: http://www.elsevier.com/locate/labeco

Related research

Keywords: Ability Schooling cost Heterogeneity Matching frictions Efficiency;

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References

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  1. Carneiro, Pedro & Heckman, James J., 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," IZA Discussion Papers 518, Institute for the Study of Labor (IZA).
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  7. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  8. Fershtman, Chaim & Murphy, Kevin M & Weiss, Yoram, 1996. "Social Status, Education, and Growth," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 108-32, February.
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  13. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
  14. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  15. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers 999, C.E.P.R. Discussion Papers.
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  18. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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Cited by:
  1. Bas Jacobs, 2008. "Is Prescott Right? Welfare State Policies and the Incentives to Work, Learn and Retire," CESifo Working Paper Series 2277, CESifo Group Munich.
  2. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.

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