Persistent Misallocation and the Returns to Education in Mexico
Over the last two decades, Mexico has experienced macroeconomic stability, an open trade regime, and substantial progress in education. Yet average workers' earnings have stagnated, and earnings of those with higher schooling have fallen, comp...
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/540981546873707376/Persistent-Misallocation-and-the-Returns-to-Education-in-Mexico http://hdl.handle.net/10986/31133 |
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okr-10986-311332022-07-18T00:23:16Z Persistent Misallocation and the Returns to Education in Mexico Levy, Santiago Lopez-Calva, Luis Felipe RETURNS TO EDUCATION EARNINGS INEQUALITY MISALLOCATION WAGE INEQUALITY RESOURCE ALLOCATION EDUCATIONAL ATTAINMENT WAGE PREMIUM Over the last two decades, Mexico has experienced macroeconomic stability, an open trade regime, and substantial progress in education. Yet average workers' earnings have stagnated, and earnings of those with higher schooling have fallen, compressing the earnings distribution and lowering the returns to education. This paper argues that distortions that misallocate resources toward less-productive firms explain these phenomena, because these firms are less intensive in well-educated workers compared with more-productive ones. It shows that while the relative supply of workers with more years of schooling has increased, misallocation of resources toward less productive firms has persisted. These two trends have generated a widening mismatch between the supply of, and the demand for, educated workers. The paper breaks down worker earnings into observable and unobservable firm and individual worker characteristics, and computes a counterfactual earnings distribution in the absence of misallocation. The main finding is that in the absence of misallocation average earnings would be higher, and that earnings differentials across schooling levels would widen, raising the returns to education. A no-misallocation path is constructed for the wage premium. Depending on parameter values, this path is found to be rising or constant, in contrast to the observed downward path. The paper concludes arguing that the persistence of misallocation impedes Mexico from taking full advantage of its investments in the education of its workforce. 2019-01-09T19:46:27Z 2019-01-09T19:46:27Z 2019-01 Working Paper http://documents.worldbank.org/curated/en/540981546873707376/Persistent-Misallocation-and-the-Returns-to-Education-in-Mexico http://hdl.handle.net/10986/31133 English Policy Research Working Paper;No. 8690 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
RETURNS TO EDUCATION EARNINGS INEQUALITY MISALLOCATION WAGE INEQUALITY RESOURCE ALLOCATION EDUCATIONAL ATTAINMENT WAGE PREMIUM |
| spellingShingle |
RETURNS TO EDUCATION EARNINGS INEQUALITY MISALLOCATION WAGE INEQUALITY RESOURCE ALLOCATION EDUCATIONAL ATTAINMENT WAGE PREMIUM Levy, Santiago Lopez-Calva, Luis Felipe Persistent Misallocation and the Returns to Education in Mexico |
| geographic_facet |
Latin America & Caribbean Mexico |
| relation |
Policy Research Working Paper;No. 8690 |
| description |
Over the last two decades, Mexico has
experienced macroeconomic stability, an open trade regime,
and substantial progress in education. Yet average
workers' earnings have stagnated, and earnings of those
with higher schooling have fallen, compressing the earnings
distribution and lowering the returns to education. This
paper argues that distortions that misallocate resources
toward less-productive firms explain these phenomena,
because these firms are less intensive in well-educated
workers compared with more-productive ones. It shows that
while the relative supply of workers with more years of
schooling has increased, misallocation of resources toward
less productive firms has persisted. These two trends have
generated a widening mismatch between the supply of, and the
demand for, educated workers. The paper breaks down worker
earnings into observable and unobservable firm and
individual worker characteristics, and computes a
counterfactual earnings distribution in the absence of
misallocation. The main finding is that in the absence of
misallocation average earnings would be higher, and that
earnings differentials across schooling levels would widen,
raising the returns to education. A no-misallocation path is
constructed for the wage premium. Depending on parameter
values, this path is found to be rising or constant, in
contrast to the observed downward path. The paper concludes
arguing that the persistence of misallocation impedes Mexico
from taking full advantage of its investments in the
education of its workforce. |
| format |
Working Paper |
| author |
Levy, Santiago Lopez-Calva, Luis Felipe |
| author_facet |
Levy, Santiago Lopez-Calva, Luis Felipe |
| author_sort |
Levy, Santiago |
| title |
Persistent Misallocation and the Returns to Education in Mexico |
| title_short |
Persistent Misallocation and the Returns to Education in Mexico |
| title_full |
Persistent Misallocation and the Returns to Education in Mexico |
| title_fullStr |
Persistent Misallocation and the Returns to Education in Mexico |
| title_full_unstemmed |
Persistent Misallocation and the Returns to Education in Mexico |
| title_sort |
persistent misallocation and the returns to education in mexico |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/540981546873707376/Persistent-Misallocation-and-the-Returns-to-Education-in-Mexico http://hdl.handle.net/10986/31133 |
| _version_ |
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