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Labor Substitutability among Schooling Groups

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  • Mark Bils
  • Bariş Kaymak
  • Kai-Jie Wu

Abstract

Knowing the degree of substitutability between schooling groups is essential to understanding the role of human capital in income differences and to assessing the economic impact of such policies as schooling subsidies, immigration systems, or redistributive taxes. We derive a lower bound for the substitutability required for worldwide growth in real GDP from 1960 to 2010 to be consistent with a stable wage premium for schooling despite the rapid growth in schooling, assuming no exogenous worldwide regress in the technology frontier for workers with only primary schooling. That lower bound for the long-run elasticity of substitution is about 4, which is far higher than values commonly used in the literature. Given our bound, we reexamine the importance of human capital in cross-country income differences and the roles of school quality versus the skill bias of technology in greater efficiency gains from schooling in richer countries.

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  • Mark Bils & Bariş Kaymak & Kai-Jie Wu, 2022. "Labor Substitutability among Schooling Groups," NBER Working Papers 29895, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29895
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    1. Federico Rossi, 2022. "The Relative Efficiency of Skilled Labor across Countries: Measurement and Interpretation," American Economic Review, American Economic Association, vol. 112(1), pages 235-266, January.
    2. Jeremy Greenwood & Nezih Guner & Ricardo Marto, 2021. "The Great Transition: Kuznets Facts for Family-Economists," Economie d'Avant Garde Research Reports 33, Economie d'Avant Garde.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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