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Changes in Returns to Education in Latin America: the Role of Demand and Supply of Skills

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  • Marco Manacorda
  • Carolina Sanchez-Paramo
  • Norbert Schady

Abstract

Changes in the relative wages of workers with different amounts of education have profound implications for developing countries, where initial levels of inequality are often very high. In this paper we use micro data for five Latin American countries over the 1980s and 1990s to document trends in men's returns to education, and to estimate whether the changes in skill premia we observe can be explained by supply or demand factors. We propose a model of demand for skills with three production inputs, and we allow the elasticity of substitution between the different educational inputs to be different using a nested CES function. Using this model, we show that the dramatic expansion in secondary school in many countries in Latin America depressed the wages of workers with secondary school. We also show that there have been sharp increases in the demand for more skilled workers in the region.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0712.

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Date of creation: Dec 2005
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Handle: RePEc:cep:cepdps:dp0712

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: returns to education; demand and supply of skills;

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  1. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  2. Milanovic, Branko, 1999. "True world income distribution, 1988 and 1993 - first calculations, based on household surveys alone," Policy Research Working Paper Series 2244, The World Bank.
  3. Branko milanovic, 2003. "True world income distribution, 1988 and 1993: First calculation based on household surveys alo," HEW, EconWPA 0305002, EconWPA.
  4. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  5. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, World Bank Group, vol. 18(3), pages 319-344.
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