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A failure of the market for college education and on-the-job human capital

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  • Balmaceda, Felipe

Abstract

This paper shows that a competitive labor market fails to provide first-best incentives to invest in general human capital and this has distributive consequences: college students and firms underinvest in human capital, and this is more pronounced for high-skill students with low-income parents. Long-term contracts, together with privately provided wage-contingent loans, cannot restore efficiency and eliminate the distributive consequences of this labor market failure. Government student loans together with firm subsidies to human capital investments fully solve the market failure.

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  • Balmaceda, Felipe, 2021. "A failure of the market for college education and on-the-job human capital," Economics of Education Review, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:ecoedu:v:84:y:2021:i:c:s0272775721000844
    DOI: 10.1016/j.econedurev.2021.102165
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    More about this item

    Keywords

    General skills; Hold-up; Credit constraints; Wage floors; Credit access; Subsidies;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • D2 - Microeconomics - - Production and Organizations
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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