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Education, Growth and Income Inequality
Coen N. Teulings University of Amsterdam - SEO Economic Research; Tinbergen Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA) Thijs Van Rens CREI and Universitat Pompeu Fabra; CEPR; Institute for the Study of Labor (IZA) January 2002 CESifo Working Paper Series No. 653; Tinbergen Institute Working Paper No. 2002-001/3 Abstract: When types of workers are imperfect substitutes, the Mincerian rate of return to human capital is negatively related to the supply of human capital. We work out a simple model for the joint evolution of output and wage dispersion. We estimate this model using cross-country panel data on GDP and Gini coefficients. The results are broadly consistent with our hypothesis of diminishing returns to education. The implied elasticity of substitution fits Katz and Murphy's (1992) estimate. A one year increase in the stock of human capital reduces the rate of return by about 2 percent. The combination of imperfect substitution and skill biased technological change closes the gap between the Mincer equation and GDP growth regressions almost completely.
JEL Classifications: E20, J24, O10, O15 Working Paper SeriesDate posted: February 21, 2002 ; Last revised: September 01, 2004Suggested CitationContact Information
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