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Education, growth and income inequality
Teuling, Coen; van Rens, Thijs
Universitat Pompeu Fabra. Departament d'Economia i Empresa
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.
2006-03-01
Macroeconomics and International Economics
growth
inequality
education
private and social return to schooling
compression effect
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