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Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation

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  • Christian Holzner
  • Andrey Launov

Abstract

We introduce skill groups and different production technologies into the Burdett-Mortensen model of on the job search. Supermodularity of the different skill groups in the production process leads to a positive intra-firm wage correlation between skill groups. Increasing returns to scale allow the theoretical earnings density to be unimodal with a long right tail even in the absence of productivity dispersion. We perform the structural estimation the model and evaluate the effect that arises from the marginal shift of the skill structure towards larger fraction of high-skilled workers. Our estimates of the production parameters demonstrate economy-wide increasing returns to scale.

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Bibliographic Info

Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number Ifo Working Papers No. 23.

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Date of creation: 2005
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Handle: RePEc:ces:ifowps:_23

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Keywords: Search; wage correlation; social returns to education;

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References

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  1. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  2. Fare, Rolf & Jansson, Leif & Lovell, C A Knox, 1985. "Modelling Scale Economies with Ray-Homothetic Production Functions," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 624-29, November.
  3. Audra J. Bowlus & Zvi Eckstein, 2002. "Discrimination and Skill Differences in an Equilibrium Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1309-1345, November.
  4. Koning, Pierre & Ridder, Geert & van den Berg, Gerard J, 1995. "Structural and Frictional Unemployment in an Equilibrium Search Model with Heterogeneous Agents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(S), pages S133-51, Suppl. De.
  5. Victor Chernozhukov & Han Hong, 2004. "Likelihood Estimation and Inference in a Class of Nonregular Econometric Models," Econometrica, Econometric Society, Econometric Society, vol. 72(5), pages 1445-1480, 09.
  6. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
  7. Arnold Zellner & Hang Ryu, 1998. "Alternative functional forms for production, cost and returns to scale functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(2), pages 101-127.
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  9. Bowlus, Audra J & Kiefer, Nicholas M & Neumann, George R, 2001. "Equilibrium Search Models and the Transition from School to Work," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 317-43, May.
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  18. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
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Cited by:
  1. Garloff, Alfred, 2008. "Minimum wages, wage dispersion and unemployment : a review on new search models," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 200833, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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