Long-Run Substitutability between More and Less Educated Workers : Evidence from U.S. States 1950-1990

We estimate the aggregate long-run elasticity of substitution between more and less educated workers (the slope of the demand curve for more relative to less educated workers) at the US state level. Our data come from the (five) 1950-1990 decennial censuses. Our empirical approach allows for state and time fixed effects and relies on time and state dependent child labor and compulsory school attendance laws as instruments for (endogenous) changes in the relative supply of more educated workers. We find the aggregate long-run elasticity of substitution between more and less educated workers to be around 1.5