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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 labor market where a continuum of heterogenous workers allocates itself between sectors depending on their decision to invest in education. Individuals differ in working 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 causes 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' -- underinvest in education, while there is overinvestment among the low schooling cost individuals -- the 'rich'. We also show that education should be more taxed than subsidized when the Hosios condition holds.

Suggested Citation

  • Charlot, Olivier & Decreuse, Bruno, 2010. "Over-education for the rich, under-education for the poor: A search-theoretic microfoundation," Labour Economics, Elsevier, vol. 17(6), pages 886-896, December.
  • Handle: RePEc:eee:labeco:v:17:y:2010:i:6:p:886-896
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    References listed on IDEAS

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    1. James Heckman, 2011. "Policies to foster human capital," Educational Studies, Higher School of Economics, issue 3, pages 73-137.
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    Citations

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    Cited by:

    1. Inmaculada García-Mainar & Víctor M. Montuenga-Gómez, 2017. "Subjective educational mismatch and signalling in Spain," Documentos de Trabajo dt2017-03, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    2. Gavrel, Frédéric & Lebon, Isabelle & Rebière, Thérèse, 2016. "Formal education versus learning-by-doing: On the labor market efficiency of educational choices," Economic Modelling, Elsevier, vol. 54(C), pages 545-562.
    3. repec:bla:labour:v:31:y:2017:i:4:p:433-456 is not listed on IDEAS
    4. Thérèse REBIÈRE & Frédéric GAVREL & Isabelle LEBON, "undated". "Formal Education Versus Learning-by-doing," EcoMod2009 21500078, EcoMod.
    5. 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 "Giovanni Anania" - DESF.
    6. Thomas RUTHERFORD, "undated". "Stochastic Programming in a Complementarity Format: Tools and Sample Applications," EcoMod2009 21500079, EcoMod.
    7. Bas Jacobs, 2009. "Is Prescott right? Welfare state policies and the incentives to work, learn, and retire," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(2), pages 253-280, April.
    8. Francesc Obiols-Homs & Virginia Sánchez-Marcos, 2015. "Education, Occupation-Mismatch and Unemployment," Working Papers 807, Barcelona Graduate School of Economics.
    9. repec:spr:italej:v:3:y:2017:i:1:d:10.1007_s40797-016-0044-9 is not listed on IDEAS
    10. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.

    More about this item

    Keywords

    Ability Schooling cost Heterogeneity Matching frictions Efficiency;

    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, Vacancies, and Immigrant Workers - - - General
    • I20 - Health, Education, and Welfare - - Education - - - General

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