How Many Educated Workers for Your Economy? European Targets, Optimal Public Spending, and Labor Market Impact

66 Pages Posted: 21 Feb 2015

See all articles by Isabelle Lebon

Isabelle Lebon

Université de Caen

Therese Rebiere

Conservatoire National des Arts et Métiers; IZA Institute of Labor Economics

Abstract

This paper studies optimal taxation schemes for education in a search-matching model where the labor market is divided between a high-skill and a low-skill sector. Two public policy targets – maximizing the global employment level and optimizing the social surplus – are studied according to three different public taxation strategies. We calibrate our model using evidence from fourteen European countries, and compare our results with the target from the Europe 2020 Agenda for achievement in higher education. We show that, with current labor market characteristics, the target set by governments seems compatible with the social surplus maximization objective in some countries, while being too high for other countries. For all countries, maximizing employment would imply higher educational spending than that required for the social surplus to reach its maximum.

Keywords: educational policy, job search, matching model, optimal taxation

JEL Classification: H21, H52, J21, J64

Suggested Citation

Lebon, Isabelle and Rebiere, Therese, How Many Educated Workers for Your Economy? European Targets, Optimal Public Spending, and Labor Market Impact. IZA Discussion Paper No. 8854, Available at SSRN: https://ssrn.com/abstract=2568070 or http://dx.doi.org/10.2139/ssrn.2568070

Isabelle Lebon (Contact Author)

Université de Caen ( email )

F-14032 Caen Cedex
France

Therese Rebiere

Conservatoire National des Arts et Métiers ( email )

292 rue Saint Martin
Paris, 75003
France

IZA Institute of Labor Economics ( email )

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

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