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

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Author Info

  • Holzner, Christian

    ()
    (Ifo Institute for Economic Research)

  • Launov, Andrey

    ()
    (University of Mainz)

Abstract

We introduce different skill groups and production functions into the Burdett-Mortensen equilibrium search model. Supermodularity in the production process leads to a positive intrafirm wage correlation between skill groups. Theory implies that increasing returns to scale can lead to a unimodal earnings density with a decreasing right tail even in the absence of productivity dispersion. Our empirical results indicate economy-wide increasing returns to scale. We use the structural estimates of the production parameters to investigate whether private returns to education equal social returns. Our estimates suggest a positive welfare effect from increasing the share of medium-skilled agents in the workforce.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1904.

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Length: 46 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1904

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

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  1. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August.
  2. Gerard J. van den Berg, 1998. "Empirical Inference with Equilibrium Search Models of the Labor Market," Tinbergen Institute Discussion Papers 98-089/3, Tinbergen Institute.
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  4. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Victor Chernozhukov & Han Hong, 2004. "Likelihood Estimation and Inference in a Class of Nonregular Econometric Models," Econometrica, Econometric Society, vol. 72(5), pages 1445-1480, 09.
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  25. Erling Barth & Harald Dale-Olsen, 2002. "Skill-group size and wages," New Zealand Economic Papers, Taylor & Francis Journals, vol. 36(1), pages 83-84.
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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 200833, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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