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  5. Labor Substitutability among Schooling Groups

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Labor Substitutability among Schooling Groups

  • Mark Bils
  • Baris Kaymak
  • Kai-Jie Wu
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

Given worldwide trends in education, wage premium for schooling, and real GDP, we derive a lower bound for the long-run elasticity of labor substitution across schooling groups of around 4, which is far higher than values commonly used in the literature. We exploit our bound to reexamine the importance of human capital in crosscountry income differences, including the roles of school quality versus the skill bias of technology in the greater efficiency gains from schooling in richer countries.

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