Education, growth and income inequality

Coen Teuling and Thijs van Rens

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: Estimates of the e¤ect of education on GDP (the social return to education)have been hard to reconcile with micro evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage di¤erentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 2 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative e¤ect as described in Acemoglu [2002]. The short run social return equals the private return.

Keywords: Growth; inequality; education; private and social return to schooling; compression effect (search for similar items in EconPapers)
JEL-codes: E24 J24 O15 (search for similar items in EconPapers)
Date: 2001-01, Revised 2006-07
New Economics Papers: this item is included in nep-dev, nep-edu, nep-hrm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Education, Growth, and Income Inequality (2008)
Working Paper: Education, Growth and Income Inequality (2003)
Working Paper: Education, Growth and Income Inequality (2003)
Working Paper: Education, Growth and Income Inequality (2002)
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