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

Christian Holzner and Andrey Launov ()

No 1904, IZA Discussion Papers from Institute of Labor Economics (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: wage correlation; social returns to education; search (search for similar items in EconPapers)
JEL-codes: J21 J23 J64 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2005-12
New Economics Papers: this item is included in nep-dge and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version published as 'Search Equilibrium and Social and Private Returns to Education' in: European Economic Review, 2010, 54 (1), 39-59

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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)
Working Paper: Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation (2005)
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