Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation

Christian Ludwig Holzner and Andrey Launov ()
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Andrey Launov: University of Würzburg and IZA Bonn

No 1904, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: We introduce different skill groups and production functions into the Burdett-Mortensen equilibrium search model. Supermodularity in the production process leads to a positive intrafirm wage correlation between skill groups. Theory implies that increasing returns to scale can lead to a unimodal earnings density with a decreasing right tail even in the absence of productivity dispersion. Our empirical results indicate economy-wide increasing returns to scale. We use the structural estimates of the production parameters to investigate whether private returns to education equal social returns. Our estimates suggest a positive welfare effect from increasing the share of medium-skilled agents in the workforce.

Keywords: search; wage correlation; social returns to education (search for similar items in EconPapers)
JEL-codes: J21 J23 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-hrm
Date: 2005-12
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Related works:
Working Paper: Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation (2005)
Working Paper: Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation (2005)
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