Labor Substitutability among Schooling Groups

Mark Bils, Baris Kaymak and Kai-Jie Wu

No 22-07, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Knowing the degree of substitutability between schooling groups is essential to understanding the role of human capital in income differences and to assessing the economic impact of such policies as schooling subsidies, immigration systems, or redistributive taxes. We derive a lower bound for the substitutability required for worldwide growth in real GDP from 1960 to 2010 to be consistent with a stable wage premium for schooling despite the rapid growth in schooling, assuming no exogenous worldwide regress in the technology frontier for workers with only primary schooling. That lower bound for the long-run elasticity of substitution is about 4, which is far higher than values commonly used in the literature. Given our bound, we reexamine the importance of human capital in cross-country income differences and the roles of school quality versus the skill bias of technology in greater efficiency gains from schooling in richer countries.

Keywords: Elasticity of Skill Substitution; Aggregate Human Capital; Growth and Development (search for similar items in EconPapers)
JEL-codes: E24 J24 O15 O47 (search for similar items in EconPapers)
Pages: 53
Date: 2022-03-23
New Economics Papers: this item is included in nep-ban, nep-gro, nep-lma and nep-mac
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Journal Article: Labor Substitutability among Schooling Groups (2024)
Working Paper: Labor Substitutability among Schooling Groups (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:93867

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DOI: 10.26509/frbc-wp-202207

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