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Schooling supply and the structure of production: Evidence from US States 1950-1990

We find that over the period 1950-1990, US states absorbed increases in the supply of schooling due to tighter compulsory schooling and child labor laws mostly through within-industry increases in the schooling intensity of production. Shifts in the industry composition towards more schooling-intensive industries played a less important role. To try and understand this finding theoretically, we consider a free trade model with two goods/industries, two skill types, and many regions that produce a fixed range of differentiated varieties of the same goods. We find that a calibrated version of the model can account for shifts in schooling supply being mostly absorbed through within-industry increases in the schooling intensity of production even if the elasticity of substitution between varieties is substantially higher than estimates in the literature.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1295.

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Date of creation: Nov 2011
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Handle: RePEc:upf:upfgen:1295
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