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Aggregate Elasticity of Substitution between Skills: Estimates from a Macroeconomic Approach

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  • Jerzmanowski, Michal
  • Tamura, Robert

Abstract

We estimate the elasticity of substitution between high-skill and low-skill workers using panel data from 32 countries during 1970-2015. Most existing estimates, which are based only on U.S. micro data, find a value close to 1.6. We bring international data together with a theory-informed macro approach to provide new evidence on this important macroeconomic parameter. Using the macro approach we find that the elasticity of substitution between tertiary-educated workers and those with lower education levels falls between 1.8 and 2.6, which is higher than previous estimates but within a plausible range. In some specifications, estimated elasticity is above the value required for strong skill-bias of technology, suggesting strong skill-bias is not implausible.

Suggested Citation

  • Jerzmanowski, Michal & Tamura, Robert, 2020. "Aggregate Elasticity of Substitution between Skills: Estimates from a Macroeconomic Approach," MPRA Paper 100768, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100768
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    References listed on IDEAS

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    Cited by:

    1. Michael A. Clemens & Satish Chand, 2023. "Labour Mobility With Vocational Skill: Australian Demand and Pacific Supply," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(4), pages 462-486, December.

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    More about this item

    Keywords

    elasticity of substitution; high-skill labor; low-skill labor; skill premium; strong skill-bias; endogenous directed technology;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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