The replacement effect and comparisons of per capita income across countries: A short note

This article is intended to clarify two aspects of Leibenstein’s replacement effect that have not been adequately addressed in print. First, formal analysis of the replacement effect demonstrates that it is not determined by the quality of entering and departing workers alone but, rather, by the entire age schedule of labor quality. Second, a simple model is used to demonstrate the absence of welfare implications associated with the replacement effect and to quantify the magnitude of the replacement effect.