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

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Author Info
Charlot, Olivier
Decreuse, Bruno

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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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File URL: http://mpra.ub.uni-muenchen.de/3624/
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Publisher 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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Related research
Keywords: Ability; Schooling cost; Heterogeneity; Matching frictions; Efficiency;

Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J60 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - General
I20 - Health, Education, and Welfare - - Education - - - General

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  1. Moscarini, Giuseppe, 2001. "Excess Worker Reallocation," Review of Economic Studies, Blackwell Publishing, vol. 68(3), pages 593-612, July.
  2. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October. [Downloadable!] (restricted)
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  3. Kevin Lang & Michael Manove, 2003. "Wage announcements with a continuum of worker type," Annales d'Economie et de Statistique, ADRES, issue 71-72, pages 10, Juillet-D. [Downloadable!]
  4. 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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  5. 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. [Downloadable!] (restricted)
  6. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers 999, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  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. 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)
  11. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April. [Downloadable!] (restricted)
  12. 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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  13. 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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  14. Inderst, Roman, 2005. "Competitive search markets with heterogeneous workers," European Economic Review, Elsevier, vol. 49(6), pages 1525-1542, August. [Downloadable!] (restricted)
  15. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
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