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Over-education for the rich vs under-education for the poor: a search-theoretic microfoundation

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Author Info
Olivier Charlot () (Université Franche Comté - UFR SJEPG)
Bruno Decreuse () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)

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Abstract

This paper provides a search-theoretic microfoundation to the popular view according to which rich but poorly talented individuals crowd out poorer and more talented individuals from schooling. We consider a two-sector, two schooling level matching model of unemployment with ex-post rent-sharing. Individuals differ in 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 originates 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. Agents with large schooling costs — the poor — select themselves too much, while there is too little self-selection among the low schooling cost individuals — the rich. We also show that education should, on average, be more taxed than subsidized.

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Paper provided by HAL in its series Working Papers with number halshs-00409583_v1.

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Date of creation: 01 Jan 2006
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Handle: RePEc:hal:wpaper:halshs-00409583_v1

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Related research
Keywords: Ability; Schooling costs; Matching frictions; Efficiency;

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  1. 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. [Downloadable!] (restricted)
  2. Maurin, Eric, 2002. "The impact of parental income on early schooling transitions: A re-examination using data over three generations," Journal of Public Economics, Elsevier, vol. 85(3), pages 301-332, September. [Downloadable!] (restricted)
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  3. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Blackwell Publishing, vol. 68(3), pages 593-612, July.
  4. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December. [Downloadable!] (restricted)
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  5. Nathan D. Grawe & Casey B. Mulligan, 2002. "Economic Interpretations of Intergenerational Correlations," NBER Working Papers 8948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Heckman, James J., 2000. "Policies to foster human capital," Research in Economics, Elsevier, vol. 54(1), pages 3-56, March. [Downloadable!] (restricted)
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  7. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 115-29, January. [Downloadable!] (restricted)
  8. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September. [Downloadable!] (restricted)
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  9. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July. [Downloadable!] (restricted)
  10. Robert Erikson & John H. Goldthorpe, 2002. "Intergenerational Inequality: A Sociological Perspective," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 31-44, Summer. [Downloadable!] (restricted)
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  12. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
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  14. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  15. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Stephen Cameron & Christopher Taber, 2000. "Borrowing Constraints and the Returns to Schooling," NBER Working Papers 7761, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October. [Downloadable!] (restricted)
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