Long-Run Substitutability Between More and Less Educated Workers: Evidence from U.S. States, 1950–1990 (original) (raw)

Labor Substitutability among Schooling Groups

Working paper (Federal Reserve Bank of Cleveland), 2022

Knowing the degree of substitutability between schooling groups is essential to understanding the role of human capital in income differences and to assessing the economic impact of such policies as schooling subsidies, immigration systems, or redistributive taxes. We derive a lower bound for the substitutability required for worldwide growth in real GDP from 1960 to 2010 to be consistent with a stable wage premium for schooling despite the rapid growth in schooling, assuming no exogenous worldwide regress in the technology frontier for workers with only primary schooling. That lower bound for the long-run elasticity of substitution is about 4, which is far higher than values commonly used in the literature. Given our bound, we reexamine the importance of human capital in cross-country income differences and the roles of school quality versus the skill bias of technology in greater efficiency gains from schooling in richer countries.

Demographic changes and education expenditures: A reinterpretation

Economics of Education Review, 2015

Several empirical studies have estimated a negative relationship between the share of an area's elderly population and per-pupil education spending. These findings have often been interpreted as evidence that an aging population has hindered the growth in per-pupil expenditures. We offer a reinterpretation of these oft-cited estimates and demonstrate that the population has aged in a way not reflected in these earlier studies' empirical designs. After fully accounting for actual U.S. population trends, we demonstrate that a rise in the elderly share of the population has resulted in a rise in per-pupil education spending, not a decline.

Educational Expansion and Its Heterogeneous Returns for Wage Workers

Schmollers Jahrbuch, 2010

The paper examines the evolution of returns to education in the West German labour market over the last two decades. During this period, graduates from the period of educational expansion in the sixties and seventies entered the labour market and an upgrading of the skill structure took place. In order to tackle the issues of endogeneity of schooling and its heterogeneous returns we apply two estimation methods: approach that relies on conditional mean independence and Garen's (1984) control function approach that requires an exclusion restriction. For the population of workers from the GSOEP, we find that both approaches produce estimates of average returns to education that decrease until the late 1990s and increase significantly afterwards. In the observation period, the gender gap in returns to education seems to vanish. Furthermore, we find that the so called "baby boomer" cohort has the lowest average return to education in young ages. However, this effect disappears when they become older.

Wage Premia, Education Race, and Supply of Educated Workers

2013

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.

[How Large Are Human-Capital Externalities? Evidence from Compulsory Schooling Laws]: Discussion

NBER Macroeconomics Annual, 2000

for helpful discussions and comments. Special thanks to Stefanie Schmidt for advice on compulsory-schooling data. 1. Data on output per worker are from Summers and Heston (1991), with the correction due to Hall and Jones (1999). Education data are from Barro and Lee (1993). See Krueger wages. Second, although in principle CSLs may be correlated with omitted factors that also affect schooling and future wages, we provide evidence suggesting this is not a problem. Omitted variables related to family background or tastes would likely induce correlation between CSLs and college attendance as well as secondary and middle schooling. The results below show that CSLs affected schooling exclusively in middle-school and high-school grades, suggesting that omitted factors do not bias estimates using CSLs as instruments. A third consideration is that changing CSLs were part of the 1910-1940 high-school movement that Goldin (1998) has argued was responsible for much of the humancapital accumulation in the United States in the twentieth century. The baseline results in the paper use samples of white men aged 40-49 from the 1960-1980 Censuses, though some results use 1950 and 1990 data and samples of men aged 30-39. We focus on the 1960-1980 Censuses because the Census schooling variable changed in 1990. Also, we show below that it is important to control for private returns correctly by instrumenting for individual schooling when estimating external returns. The 1960-1980 Censuses include information on quarter of birth, which can be used as an instrument for individual schooling as in Angrist and Krueger (1991). We start with men in their 40s because they are on a relatively flat part of the age-earnings profile. This makes it easier to control for the effect of individual education on earnings, and facilitates the use of quarter-of-birth instruments for individual schooling. Finally, blacks are excluded because blacks in these cohorts experienced marked changes in school quality (see, e.g., Welch, 1973; Margo, 1990; or Card and Krueger, 1992a). Ordinary least-squares (OLS) estimates using data from the 1960-1980 Censuses show a large positive relationship between average schooling and individual wages. A one-year increase in average schooling is associated with about a 7% increase in average wages, over and above the roughly equal private returns. In contrast with the OLS estimates, instrumental variables (IV) estimates of external returns for men aged 40-49 in 1960-1980 are typically around 1-2%, and significantly lower than the corresponding OLS estimates. Adding data from the 1950 Census and/or data for men aged 30-39 yields slightly smaller and more precise estimates.3 We therefore conclude there is little evidence for large external returns, though the results are consistent with modest external returns of 1-3%. The confidence intervals typically exclude human capital externalities greater than 5-6% and therefore rule out magnitudes in the Comment MARK BILS University of Rochester

Education and Income of the States of the United States: 1840–2000

2007

This article introduces original annual average years of schooling measures for each state from 1840 to 2000. Our methodology results in state estimates similar to those reported in the United States Census from 2000 back to 1940 and national, turn of the century estimates strikingly close to those presented by Schultz (Schultz, T. (1961). In N. B. Henry (Ed.), Social forces influencing American education. Chicago: University of Chicago Press.) and Fishlow (Fishlow, A. (1966). In H. Rosovsky (Ed.), Industrialization in two systems. John Wiley & Sons). To further determine the validity of our state schooling estimates, we first combine original data on real state per worker output with existing data to provide a more comprehensive series of real state output per worker from 1840 to 2000. We then estimate aggregate Mincerian earnings regressions and discover that the return to a year of schooling for the average individual in a state ranges from 11% to 15%. This range is robust to various time periods, various estimation methods, various assumptions about the endogeneity of schooling and is in line with the body of evidence from the labor literature.

Education Expansion, Sorting, and the Decreasing Education Wage Premium

2021

This paper studies the interplay between worker supply and firm demand, and their effect on sorting and wages in the labor market. I build a model of one-to-many matching with multidimensional types in which several workers are employed by a single firm. Matching is dictated by worker preferences, their relative productivity in the firm, and substitution patterns with other workers. Using tools from the optimal transport literature, I solve the model and structurally estimate it on Portuguese matched employer-employee data. The Portuguese labor market is characterized by an increase in the relative supply of high school graduates, an increasingly unbalanced distribution of high school graduates versus non-graduates across industries, and a decreasing high school wage premium between 1987 and 2017. Counterfactual exercises suggest that both changes in worker preferences and the increasing relative productivity of high school graduates over non-graduates act as a mitigating force on t...