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Over-education for the rich vs under-education for the poor: a search-theoretic microfoundation

  • Olivier Charlot

    ()

    (UFC - Université de Franche-Comté)

  • Bruno Decreuse

    ()

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - CNRS - Centre National de la Recherche Scientifique)

This paper provides a search-theoretic microfoundation to the popular view according to which rich but poorly talented individuals crowd out poorer and more talented individuals from schooling. We consider a two-sector, two schooling level matching model of unemployment with ex-post rent-sharing. Individuals differ in 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 originates 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. Agents with large schooling costs — the poor — select themselves too much, while there is too little self-selection among the low schooling cost individuals — the rich. We also show that education should, on average, be more taxed than subsidized.

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Paper provided by HAL in its series Working Papers with number halshs-00409583.

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Date of creation: 01 Jan 2006
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Handle: RePEc:hal:wpaper:halshs-00409583
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  1. Heckman, James J., 2000. "Policies to foster human capital," Research in Economics, Elsevier, vol. 54(1), pages 3-56, March.
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  9. Giuseppe Moscarini, 2001. "Excess Worker Reallocation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 593-612.
  10. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  11. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
  12. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September.
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  14. Eric Maurin, 1999. "The Impact of Parental Income on Early Schooling Transitions : A Re-examination Using Data over Three Generations," Working Papers 99-69, Centre de Recherche en Economie et Statistique.
  15. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 279-298.
  16. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
  17. 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.
  18. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
  19. Robert Erikson & John H. Goldthorpe, 2002. "Intergenerational Inequality: A Sociological Perspective," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 31-44, Summer.
  20. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
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