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

Author

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  • Olivier Charlot

    (UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Bruno Decreuse

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

Abstract

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.

Suggested Citation

  • Olivier Charlot & Bruno Decreuse, 2006. "Over-education for the rich vs under-education for the poor: a search-theoretic microfoundation," Working Papers halshs-00409583, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00409583
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00409583v1
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    Cited by:

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    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. Girsberger, Esther Mirjam & Meango, Romuald, 2022. "The Puzzle of Educated Unemployment in West Africa," IZA Discussion Papers 15721, Institute of Labor Economics (IZA).
    4. Christopher Flinn & Joseph Mullins, 2015. "Labor Market Search And Schooling Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 359-398, May.
    5. Mendolicchio, Concetta & Paolini, Dimitri & Pietra, Tito, 2012. "Investments in education and welfare in a two-sector, random matching economy," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 367-385.
    6. Maurício Benegas & Márcio Veras Corrêa, 2017. "(Un)equal Educational Opportunities and the Labor Market: A Theoretical Analysis," LABOUR, CEIS, vol. 31(4), pages 433-456, December.
    7. Thérèse REBIÈRE & Frédéric GAVREL & Isabelle LEBON, 2009. "Formal Education Versus Learning-by-doing," EcoMod2009 21500078, EcoMod.
    8. 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.
    9. Lin Zhang, 2019. "Substitutability in Human Capital Formation and Education Inequality," Economics Bulletin, AccessEcon, vol. 39(1), pages 55-63.
    10. Andrew Shephard & Modibo Sidibe, 2019. "Schooling Investment, Mismatch,and Wage Inequality," PIER Working Paper Archive 19-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    11. Obiols-Homs, F. & Sánchez-Marcos, V., 2018. "Education outcomes and the labor market," Labour Economics, Elsevier, vol. 54(C), pages 14-28.
    12. Patrizia Ordine & Giuseppe Rose, 2017. "Individual Mismatch and Aggregate Overeducation: Evidence from a Quasi-Natural Experiment," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(1), pages 1-23, March.
    13. David Boto-García & Marta Escalonilla, 2022. "University education, mismatched jobs: are there gender differences in the drivers of overeducation?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(3), pages 861-902, October.
    14. Chassamboulli, Andri & Gomes, Pedro, 2023. "Public-sector employment, wages and education decisions," Labour Economics, Elsevier, vol. 82(C).
    15. Darong Dai & Guoqiang Tian, 2020. "On the Efficiency of Wage-Setting Mechanisms with Search Frictions and Human Capital Investment," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 1-40, May.
    16. Matteo Bobba & Luca Flabbi & Santiago Levy, 2022. "Labor Market Search, Informality, And Schooling Investments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 211-259, February.
    17. Stephanie de Mel, 2020. "A Job Worth Waiting for: Parental Wealth and Youth Unemployment in Ghana," IFS Working Papers W20/21, Institute for Fiscal Studies.
    18. Yujing Xu, 2022. "Unobservable investments, trade efficiency and search frictions," Post-Print hal-03848827, HAL.
    19. Charlot, Olivier & Malherbet, Franck, 2013. "Education and employment protection," Labour Economics, Elsevier, vol. 20(C), pages 3-23.
    20. Thomas RUTHERFORD, 2009. "Stochastic Programming in a Complementarity Format: Tools and Sample Applications," EcoMod2009 21500079, EcoMod.
    21. 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.
    22. Virginia Sánchez-Marcos & Francesc Obiols-Homs, 2015. "Education, Occupation-Mismatch and Unemployment," Working Papers 807, Barcelona School of Economics.
    23. Garcia-Mainar, Inmaculada & Montuenga, Victor M., 2019. "The signalling role of over-education and qualifications mismatch," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 99-119.

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    Keywords

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    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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