Citation

Discussion Paper Details

Please find the details for DP3863 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Education, Growth and Income Inequality

Author(s): Coen N Teulings and Thijs van Rens

Publication Date: April 2003

Keyword(s): education, growth and inequality

Programme Area(s): Labour Economics

Abstract: Estimates of the effect of education on GDP (the social return to education) have been hard to reconcile with micro-evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill-biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage differentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 1.5 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative effect as described in Acemoglu [2002]. The short-run social return equals the private return, but the long-run return is two times higher, providing evidence in favour of endogenous technological progress. The rise in education is the major cause of productivity growth over the sample period 1960-90.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3863

Bibliographic Reference

Teulings, C and van Rens, T. 2003. 'Education, Growth and Income Inequality'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3863