The wage differential between college and high-school graduates in the 2000s: The effect of labor substitution between age groups

This paper investigates whether labor substitution between age groups has become higher in the 2000s. I update Noro and Ohtake (2006) which uses the Basic Survey on Wage Structure in Japan and estimates elasticity of substitution between employees in three age groups before 2001. They employ a demand-supply framework of Card and Lemieux (2001) assuming an imperfect substitution between age cohorts. The assumption is still found to be reasonable in the estimates up to 2011. The elasticities of substitution have remained in the 2000s compared to estimates before the 1990s. This implies substitution between younger labor and older labor has not increased although it is thought to be part of a background of deteriorating youth employment..