Teuling, CoenVan Rens, Thijs, 1973-Universitat Pompeu Fabra. Departament d'Economia i Empresa2017-07-262017-07-262001-01-01Review of Economics and Statistics, Vol. 90 (1), pp. 89-104. February 2008http://hdl.handle.net/10230/777Estimates of the e¤ect of education on GDP (the social return to education)have been hard to reconcile with micro evidence on the private return. We present a simple explanation that combines two ideas: imperfect substitution between worker types and endogenous skill biased technological progress. When types of workers are imperfect substitutes, the supply of human capital is negatively related to its return, and a higher education level compresses wage di¤erentials. We use cross-country panel data on income inequality to estimate the private return and GDP data to estimate the social return. The results show that the private return falls by 2 percentage points when the average education level increases by a year, which is consistent with Katz and Murphy's [1992] estimate of the elasticity of substitution between worker types. We find no evidence for dynamics in the private return, and certainly not for a reversal of the negative e¤ect as described in Acemoglu [2002]. The short run social return equals the private return.application/pdfengL'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commonsinfo:eu-repo/semantics/workingPapergrowthinequalityeducationprivate and social return to schoolingcompression effectMacroeconomics and International Economicsinfo:eu-repo/semantics/openAccess