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

Launov, Andrey und Holzner, Christian (2005): Search Equilibrium, Production Parameters and Social Returns to Education: Theory and Estimation. Würzburg economic papers,

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 toeducation equal social returns. Our estimates suggest a positive welfare effect from increasing the share of medium-skilled agents in the workforce.

• Item Type: Paper
• Faculties: Economics; Economics > Chairs > Chair in Public Finance
• Subjects: 300 Social sciences > 330 Economics
• Language: English