Wage premia, education race, and supply of educated workers

Luca Deidda, Dimitri Paolini and ,

No 2013062, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We model a labor market in which workers’ level of education might be a signal of skills. We show that whenever the wage premium for education increases over time – as it might happen under skill biased technological progress – the investment in education needed to sustain a separating equilibrium in which skilled workers perfectly signal their type, also increases. Hence, an increase in the education wage premium induces an education race. If the borrowing capacity of poor workers is lower than that of rich ones due to capital market imperfections, poor-skilled workers will finally fall behind in this race – and pool together with some unskilled ones – as the investment they would have to undertake to signal their type eventually becomes unaffordable to them. Such mechanism supports a supply side explanation for the joint long run trends of (i) the education wage premia, and (ii) the relative supply, of postgraduates and college graduates in the US labor market, which complements the demand based explanation for wage skill premia based on skill bias technological change hypothesis.

Keywords: education race; skills; signaling; supply of educated workers; wage education premium (search for similar items in EconPapers)
JEL-codes: D4 D8 L15 (search for similar items in EconPapers)
Date: 2013-12-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2013.html (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2013062

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().