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

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  • Charlot, Olivier
  • Decreuse, Bruno

Abstract

This paper studies the efficiency of educational choices in a two sector/two schooling level matching model of the labour market where a continuum of heterogenous workers allocates itself between sectors depending on their decision to invest in education. 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. Provided that ability and schooling cost are not too positively correlated, 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 be more taxed than subsidized when the Hosios condition holds.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3624.

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Date of creation: 2006
Date of revision: Apr 2007
Handle: RePEc:pra:mprapa:3624

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Keywords: Ability; Schooling cost; Heterogeneity; Matching frictions; Efficiency;

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References

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  1. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  2. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," 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(1), pages 283-305, February.
  3. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High Wage Workers and High Wage Firms," NBER Working Papers 4917, National Bureau of Economic Research, Inc.
  4. 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, University of Chicago Press, vol. 109(3), pages 455-499, June.
  5. Heckman, James J., 2000. "Policies to foster human capital," Research in Economics, Elsevier, Elsevier, vol. 54(1), pages 3-56, March.
  6. Daron Acemoglu, 1998. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," NBER Working Papers 6658, National Bureau of Economic Research, Inc.
  7. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 779-804, August.
  8. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(3), pages 355-74, August.
  9. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers, Tel Aviv 8-93, Tel Aviv.
  10. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
  11. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  12. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(4), pages 694-723, October.
  13. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers, C.E.P.R. Discussion Papers 999, C.E.P.R. Discussion Papers.
  14. Shoshana NEUMAN & Ronald L. OAXACA, 2003. "Gender vs Ethnic Wage Differentials Among Professionals: Evidence from Israel," Annales d'Economie et de Statistique, ENSAE, issue 71-72, pages 267-292.
  15. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, Elsevier, vol. 2(3), pages 193-216, July.
  16. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, Elsevier, vol. 12(2), pages 251-267, April.
  17. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 68(3), pages 593-612, July.
  18. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, Elsevier, vol. 46(8), pages 1439-1451, September.
  19. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(1), pages 115-29, January.
  20. Inderst, Roman, 2005. "Competitive search markets with heterogeneous workers," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1525-1542, August.
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Cited by:
  1. Patrizia Ordine & Giuseppe Rose, 2014. "Too Many Graduates? A Theory Of (Efficient) Educational Mismatch And Evidence From A Quasi-Natural Experiment," Working Papers 201409, Università della Calabria, Dipartimento di Economia, Statistica e Finanza (Ex Dipartimento di Economia e Statistica).
  2. Bas Jacobs, 2008. "Is Prescott Right? Welfare State Policies and the Incentives to Work, Learn and Retire," CESifo Working Paper Series 2277, CESifo Group Munich.
  3. Gavrel, Frédéric & Lebon, Isabelle & Rebiere, Therese, 2014. "Formal Education Versus Learning-by-Doing," IZA Discussion Papers 8341, Institute for the Study of Labor (IZA).
  4. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, Elsevier, vol. 20(C), pages 3-23.

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