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The Demand-Supply-Demand Twist: How the Wage Structure Got More Convex

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  • Chiara Binelli

    () (Oxford University, Nuffeld College)

Abstract

In the 1990s, in many countries, log wages became a more convex function of education: returns to college increased and returns to intermediate education declined. This paper argues that an important cause of this convexification was a two-stage demand-supply interaction: an increased demand for both sorts of educated workers stimulated a supply response; the increased supply of intermediate-educated further increased the demand for college-educated workers, because these two types of labour are complementary. This argument is supported by an empirical equilibrium model of savings and educational choices for Mexico, where the degree of convexification was amplified by loosening credit constraints.

Suggested Citation

  • Chiara Binelli, 2009. "The Demand-Supply-Demand Twist: How the Wage Structure Got More Convex," Working Paper series 48_09, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:48_09
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    References listed on IDEAS

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    1. Gustav Feichtinger & Richard F. Hartl & Suresh P. Sethi, 1994. "Dynamic Optimal Control Models in Advertising: Recent Developments," Management Science, INFORMS, vol. 40(2), pages 195-226, February.
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    Cited by:

    1. Azam Mehtabul, 2010. "India's Increasing Skill Premium: Role of Demand and Supply," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-28, October.
    2. Vincenzo Caponi, 2011. "Intergenerational Transmission Of Abilities And Self‐Selection Of Mexican Immigrants," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 523-547, May.
    3. Andrea Canidio, 2012. "The Determinants of Long-Run Inequality," CEU Working Papers 2012_10, Department of Economics, Central European University, revised 20 Mar 2012.
    4. Chiara Binelli & Orazio Attanasio, 2010. "Mexico in the 1990s: the Main Cross-Sectional Facts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 238-264, January.

    More about this item

    Keywords

    Wage Inequality; Human Capital; Empirical Equilibrium Model; Latin America;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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