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Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation

  • Holzner, Christian

    ()

    (Ifo Institute for Economic Research)

  • Launov, Andrey

    ()

    (University of Mainz)

We introduce different skill groups and production functions into the Burdett-Mortensen equilibrium search model. Supermodularity in the production process leads to a positive intrafirm wage correlation between skill groups. Theory implies that increasing returns to scale can lead to a unimodal earnings density with a decreasing right tail even in the absence of productivity dispersion. Our empirical results indicate economy-wide increasing returns to scale. We use the structural estimates of the production parameters to investigate whether private returns to education equal social returns. Our estimates suggest a positive welfare effect from increasing the share of medium-skilled agents in the workforce.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1904.

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Length: 46 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1904
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  11. Bontemps, Christian & Robin, Jean-Marc & van den Berg, Gerard J, 2000. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Nonparametric Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 305-58, May.
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  21. Koning, Pierre & Ridder, Geert & van den Berg, Gerard J, 1995. "Structural and Frictional Unemployment in an Equilibrium Search Model with Heterogeneous Agents," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(S), pages S133-51, Suppl. De.
  22. Donald W. K. Andrews, 2000. "Inconsistency of the Bootstrap when a Parameter Is on the Boundary of the Parameter Space," Econometrica, Econometric Society, vol. 68(2), pages 399-406, March.
  23. A. Dalmazzo & Guido De Blasio, 2003. "Social Returns to Education: Evidence From Italian Local Labor Market Areas," IMF Working Papers 03/165, International Monetary Fund.
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  25. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.
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  29. repec:inr:wpaper:155908 is not listed on IDEAS
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