Schooling Supply and the Structure of Production: Evidence from US States 1950-1990

• Authors: Giovanni Peri and Antonio Ciccone.
• BSE Working Paper: 595 | September 15
• Keywords: Schooling supply , Within-industry absorption , Industry composition
• JEL codes: F1, J3, R1
• Schooling supply
• Within-industry absorption
• Industry composition

We find that over the period 1950-1990, US states absorbed increases in the supply of schooling due to tighter compulsory schooling and child labor laws mostly through within-industry increases in the schooling intensity of production. Shifts in the industry composition towards more schooling-intensive industries played a less important role. To try and understand this finding theoretically, we consider a free trade model with two goods/industries, two skill types, and many regions that produce a fixed range of differentiated varieties of the same goods. We find that a calibrated version of the model can account for shifts in schooling supply being mostly absorbed through within-industry increases in the schooling intensity of production even if the elasticity of substitution between varieties is substantially higher than estimates in the literature.