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The schooling response to a sustained increase in low-skill wages: evidence from Spain 1989-2009

  • Aitor Lacuesta


    (Banco de España)

  • Sergio Puente


    (Banco de España)

  • Ernesto Villanueva


    (Banco de España)

The response of human capital accumulation to changes in the anticipated returns to schooling determines the type of skills supplied to the labor market, the productivity of future cohorts, and the evolution of inequality. Unlike the US, the UK or Germany, Spain has experienced since 1995 a drop in the returns to medium and tertiary education and, with a lag, a drop in schooling attainment of recent cohorts, providing the opportunity to estimate the response of different forms of human capital acquisition to relative increases in low-skill wages. We measure the expected returns to schooling using skill-specific wages bargained in collective agreements at the province-industry level. We argue that those wages are easily observable by youths and relatively insensitive to shifts in the supply of workers. Our preferred estimates suggest that a 10% increase in the ratio of wages of unskilled workers to the wages of mid-skill workers increases the fraction of males completing at most compulsory schooling by between 2 and 5 percentage points. The response is driven by males from less educated parents and comes at the expense of students from the academic high school track rather than the vocational training track.

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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1208.

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Length: 51 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:bde:wpaper:1208
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  1. Eric D. Gould & Bruce A. Weinberg & David B. Mustard, 2002. "Crime Rates And Local Labor Market Opportunities In The United States: 1979-1997," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 45-61, February.
  2. Pedro Carneiro & Sokbae Lee, 2011. "Trends in Quality-Adjusted Skill Premia in the United States, 1960-2000," American Economic Review, American Economic Association, vol. 101(6), pages 2309-49, October.
  3. Josep Pijoan-Mas & Virginia Sánchez-Marcos, 2009. "Spain Is Different: Falling Trends Of Inequeality," Working Papers wp2009_0910, CEMFI.
  4. Florentino Felgueroso & Manuel Hidalgo & SergiJiménez Martín, 2010. "Explaining the fall of the skill wage premium in Spain," Working Papers 2010-19, FEDEA.
  5. Magali BEFFY & Denis FOUGERE & Arnaud MAUREL, 2009. "Choosing the Field of Study in Post-Secondary Education : Do Expected Earnings Matter ?," Working Papers 2009-14, Centre de Recherche en Economie et Statistique.
  6. Ainhoa Aparicio, 2010. "High-School Dropouts and Transitory Labor Market Shocks: The Case of the Spanish Housing Boom," Carlo Alberto Notebooks 158, Collegio Carlo Alberto.
  7. Dellas, Harris & Sakellaris, Plutarchos, 1996. "On the cyclicality of schooling: Theory and evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  8. Dan A. Black & Terra G. McKinnish & Seth G. Sanders, 2005. "Tight Labor Markets and the Demand for Education: Evidence from the Coal Boom and Bust," ILR Review, Cornell University, ILR School, vol. 59(1), pages 3-16, October.
  9. Joseph G. Altonji & Prashant Bharadwaj & Fabian Lange, 2008. "Changes in the Characteristics of American Youth: Implications for Adult Outcomes," NBER Working Papers 13883, National Bureau of Economic Research, Inc.
  10. Charles T. Clotfelter & Michael Rothschild, 1993. "Studies of Supply and Demand in Higher Education," NBER Books, National Bureau of Economic Research, Inc, number clot93-1, December.
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