Working Paper: CEPR ID: DP2798
Authors: Etienne Wasmer
Abstract: This Paper describes the changes in the composition of the labour force in the last 35 years and quantifies the substitution of low education / high experience workers by low experience / high education workers by using US and French microdata. The consequences of this substitution on the wage structure are then investigated. In the US, labour supply changes can explain the changes in returns to experience. It also accounts for a part of the increase in returns to education between 1980 and 2000, between 8% and 20% depending on the specification. These results rely on panel estimates of a useful concept: the elasticity of substitution between experience and education, which is found to be less than half. In France, the covariations of prices and the supply of skills are consistent with a pure labour supply explanation. Methodologically, the Paper shows that the use of a stock measure of efficient units of skills is better than flow measures (e.g. cohort size). It also allows analysis of the consequences of rising female labour participation.
Keywords: education; experience; labour supply; wage inequality
JEL Codes: E24; J21; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor supply changes (J20) | Changes in wage structures (J31) |
| Substitution of low education-high experience workers (J69) | Changes in wage structures (J31) |
| Substitution of low education-high experience workers (J69) | Returns to education (I26) |
| Labor supply changes (J20) | Returns to education (I26) |
| Labor supply changes (J20) | Changes in returns to experience (I26) |
| Rising supply of low experience workers (F66) | Rising experience premium (J39) |
| Covariations of prices and skills supply (J24) | Labor supply explanation for wage structures (J29) |