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

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  • Andrey Launov
  • Christian Holzner

    ()
    (Social Policy and Labor Markets IFOInstitute for Economic Research)

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 toeducation 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 Society for Economic Dynamics in its series 2005 Meeting Papers with number 604.

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Date of creation: 2005
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Handle: RePEc:red:sed005:604

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

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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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