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

  • Charlot, Olivier
  • Decreuse, Bruno

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.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 6 (December)
Pages: 886-896

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Handle: RePEc:eee:labeco:v:17:y:2010:i:6:p:886-896
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  1. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 115-29, January.
  2. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September.
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  9. 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.
  10. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
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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.
  15. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  16. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
  17. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
  18. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers 8-93, Tel Aviv.
  19. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers 999, C.E.P.R. Discussion Papers.
  20. 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, vol. 109(3), pages 455-499, June.
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