Precautionary Demand for Education, Inequality, and Technological Progress

43 Pages Posted: 8 Nov 2000

See all articles by Eric D. Gould

Eric D. Gould

Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Omer Moav

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Bruce A. Weinberg

Ohio State University (OSU) - Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2000

Abstract

Individuals choose to invest in general skills through education or technology-specific skills by working on the job. Technological progress, which occurs randomly across sectors, depreciates technology-specific skills - thus increasing the return to education and generating a precautionary element in the demand for education. Consistent with existing empirical evidence, the model predicts that the sources of inequality growth are different within educated and uneducated workers: increasing randomness is a primary source within uneducated workers, while inequality growth within educated workers is determined more by changes in the composition and return to ability. The model generates an endogenous evolution of inequality "within" and "between" groups that is consistent with the patterns and sources of inequality growth over the last few decades. The model also generates patterns of inequality and skill composition within industrial sectors - most notably, the well-known positive correlation between the rate of technological change and skill-upgrading within an industry. In addition, we empirically verify the "precautionary demand for education" by showing that individuals consider the income risk associated with being an uneducated worker when making their schooling decisions.

JEL Classification: J31, O11, O33, O40

Suggested Citation

Gould, Eric D. and Moav, Omer and Weinberg, Bruce A., Precautionary Demand for Education, Inequality, and Technological Progress (July 2000). Available at SSRN: https://ssrn.com/abstract=246611 or http://dx.doi.org/10.2139/ssrn.246611

Eric D. Gould (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3247 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: https://sites.google.com/site/edgould

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Omer Moav

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/moav

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bruce A. Weinberg

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States
614-292-6701 (Phone)
614-292-3906 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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