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Education, Growth and Income Inequality

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  • Teulings, Coen N
  • van Rens, Thijs

Abstract

Estimates of the effect of education on GDP (the social return to education) have been hard to reconcile with micro-evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill-biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage differentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 1.5 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative effect as described in Acemoglu [2002]. The short-run social return equals the private return, but the long-run return is two times higher, providing evidence in favour of endogenous technological progress. The rise in education is the major cause of productivity growth over the sample period 1960-90.

Suggested Citation

  • Teulings, Coen N & van Rens, Thijs, 2003. "Education, Growth and Income Inequality," CEPR Discussion Papers 3863, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3863
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    Cited by:

    1. Coen Teulings & Thijs van Rens, 2008. "Education, Growth, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 89-104, February.
    2. Miguel Portela & Rob Alessie & Coen Teulings, 2010. "Measurement Error in Education and Growth Regressions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(3), pages 618-639, September.
    3. Schiffbauer, Marc, 2006. "Theoretical and methodological study on the role of public policies in fostering innovation and growth," Papers DYNREG04, Economic and Social Research Institute (ESRI).
    4. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy.
    5. Bos, Frits & Teulings, Coen, 2011. "Evaluating election platforms: a task for fiscal councils? Scope and rules of the game in view of 25 years of Dutch practice," MPRA Paper 31536, University Library of Munich, Germany.
    6. Stephen Jenkins, 2015. "World income inequality databases: an assessment of WIID and SWIID," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(4), pages 629-671, December.
    7. Pieter A. Gautier & Coen N. Teulings, 2015. "Sorting And The Output Loss Due To Search Frictions," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1136-1166, December.
    8. Tetsuo Ono & Yuki Uchida, 2016. "Inequality and Education Choice," Discussion Papers in Economics and Business 16-17, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    9. repec:spr:series:v:8:y:2017:i:4:d:10.1007_s13209-017-0162-0 is not listed on IDEAS
    10. Heckman, James J. & Matzkin, Rosa & Nesheim, Lars, 2003. "Simulation and Estimation of Hedonic Models," IZA Discussion Papers 843, Institute for the Study of Labor (IZA).
    11. Thijs van Rens & Almut Balleer, 2007. "Cyclical Skill-Biased Technological Change," 2007 Meeting Papers 62, Society for Economic Dynamics.
    12. Tiago Neves Sequeira & Marcelo Santos & Alexandra Ferreira†Lopes, 2017. "Income Inequality, TFP, and Human Capital," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 89-111, March.
    13. Barassou Diawara & Keisuke Osumi, 2010. "Education and job complexity levels," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 57(4), pages 361-368, December.
    14. Robert A.J. Dur & Coen N. Teulings, 2001. "Education and Efficient Redistribution," Tinbergen Institute Discussion Papers 01-090/3, Tinbergen Institute, revised 12 Jun 2003.
    15. Dur, Robert & Glazer, Amihai, 2008. "Subsidizing Enjoyable Education," Labour Economics, Elsevier, vol. 15(5), pages 1023-1039, October.
    16. James J. Heckman & Rosa Matzkin & Lars Nesheim, 2003. "Simulation and Estimation of Nonaddative Hedonic Models," NBER Working Papers 9895, National Bureau of Economic Research, Inc.
    17. Ana Hidalgo-Cabrillana & Zoë Kuehn & Cristina Lopez-Mayan, 2017. "Development accounting using PIAAC data," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 8(4), pages 373-399, November.

    More about this item

    Keywords

    education; growth; inequality;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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