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

  • Charlot, Olivier
  • Decreuse, Bruno

This paper studies the efficiency of educational choices in a two sector/two schooling level matching model of the labour market where a continuum of heterogenous workers allocates itself between sectors depending on their decision to invest in education. 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. Provided that ability and schooling cost are not too positively correlated, 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 be more taxed than subsidized when the Hosios condition holds.

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File URL: https://mpra.ub.uni-muenchen.de/3624/1/MPRA_paper_3624.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3624.

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Date of creation: 2006
Date of revision: Apr 2007
Handle: RePEc:pra:mprapa:3624
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  1. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche 9503, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers 8-93, Tel Aviv.
  3. Inderst, Roman, 2005. "Competitive search markets with heterogeneous workers," European Economic Review, Elsevier, vol. 49(6), pages 1525-1542, August.
  4. Giuseppe Moscarini, 2001. "Excess Worker Reallocation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 593-612.
  5. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  6. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
  7. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc.
  8. James Albrecht & Susan Vroman, 2000. "A Matching Model with Endogenous Skill Requirements," Econometric Society World Congress 2000 Contributed Papers 0774, Econometric Society.
  9. repec:adr:anecst:y:2003:i:71-72:p:10 is not listed on IDEAS
  10. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  11. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
  12. Snower, Dennis J., 1994. "The Low-Skill, Bad-Job Trap," CEPR Discussion Papers 999, C.E.P.R. Discussion Papers.
  13. 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.
  14. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
  15. 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.
  16. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
  17. Burdett, Ken & Smith, Eric, 2002. "The low skill trap," European Economic Review, Elsevier, vol. 46(8), pages 1439-1451, September.
  18. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
  19. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
  20. Derek Laing & Theodore Palivos & Ping Wang, 1995. "Learning, Matching and Growth," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 115-129.
  21. 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.
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