Aggregate Elasticity of Substitution between Skills: Estimates from a Macroeconomic Approach

Michal Jerzmanowski and Robert Tamura

MPRA Paper from University Library of Munich, Germany

Abstract: We estimate the elasticity of substitution between high-skill and low-skill workers using panel data from 32 countries during 1970-2015. Most existing estimates, which are based only on U.S. micro data, find a value close to 1.6. We bring international data together with a theory-informed macro approach to provide new evidence on this important macroeconomic parameter. Using the macro approach we find that the elasticity of substitution between tertiary-educated workers and those with lower education levels falls between 1.8 and 2.6, which is higher than previous estimates but within a plausible range. In some specifications, estimated elasticity is above the value required for strong skill-bias of technology, suggesting strong skill-bias is not implausible.

Keywords: elasticity of substitution; high-skill labor; low-skill labor; skill premium; strong skill-bias; endogenous directed technology (search for similar items in EconPapers)
JEL-codes: E24 E25 J31 O11 (search for similar items in EconPapers)
Date: 2020-05-28
New Economics Papers: this item is included in nep-ino, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Aggregate elasticity of substitution between skills: estimates from a macroeconomic approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:100768

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