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Education, Growth and Income Inequality

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Author Info
Teulings, Coen N
van Rens, Thijs

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Abstract

Estimates of the effect of education on GDP (the social return to education) have been hard to reconcile with micro-evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill-biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage differentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 1.5 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative effect as described in Acemoglu [2002]. The short-run social return equals the private return, but the long-run return is two times higher, providing evidence in favour of endogenous technological progress. The rise in education is the major cause of productivity growth over the sample period 1960-90.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3863.

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Date of creation: Apr 2003
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Handle: RePEc:cpr:ceprdp:3863

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Related research
Keywords: education; growth; inequality;

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Find related papers by JEL classification:
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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  1. Heckman, James & Matzkin, Rosa & Nesheim, Lars, 2003. "Simulation and Estimation of Hedonic Models," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  2. James J. Heckman & Rosa Matzkin & Lars Nesheim, 2003. "Simulation and Estimation of Nonaddative Hedonic Models," NBER Working Papers 9895, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Miguel Portela & Coen Teulings & Rob Alessie, 2004. "Measurement Error in Education and Growth Regressions," Working Papers 04-14, Utrecht School of Economics. [Downloadable!]
    Other versions:
  4. Rita Asplund, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy. [Downloadable!]
  5. Robert A.J. Dur & Coen N. Teulings, 2001. "Education and Efficient Redistribution," Tinbergen Institute Discussion Papers 01-090/3, Tinbergen Institute, revised 12 Jun 2003. [Downloadable!]
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  6. Robert A.J. Dur & Coen N. Teulings, 2003. "Are Education Subsidies an Efficient Redistributive Device?," Tinbergen Institute Discussion Papers 03-024/3, Tinbergen Institute, revised 19 Sep 2003. [Downloadable!]
  7. Robert A. J. Dur & Amihai Glazer, 2005. "Subsidizing Enjoyable Education," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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