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

  • Andrey Launov
  • Christian Holzner

    ()

    (Social Policy and Labor Markets IFOInstitute for Economic Research)

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 toeducation 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 Society for Economic Dynamics in its series 2005 Meeting Papers with number 604.

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Date of creation: 2005
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Handle: RePEc:red:sed005:604
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  18. 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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