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On-the-job search and optimal schooling under uncertainty and irreversibility

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  • Anna Zaharieva

    ()
    (Center for Mathematical Economics, Bielefeld University)

Abstract

This paper develops a labour market model with on-the-job search, match-specific productivity draws and an endogenous irreversible schooling decision. The choice of schooling is modelled as an optimal stopping problem which gives rise to the equilibrium heterogeneity of workers with respect to the formal education. The optimal schooling decision is characterized by the reservation productivity of students which is a monotonic function of time. Moreover, this reservation productivity is lower in expansions when job-to-job mobility is more intensive. Therefore, the model is compatible with the empirical evidence that expansions have a positive effect on the probability of a school dropout. The schooling density is downward-sloping and the equilibrium wage distribution is right-skewed with a unique interior mode. This means that the majority of workers earn wages in the middle range of the earnings distribution. At the same time there is a small proportion of employees in the beginning of their career with wages in the left tail of the earnings distribution and a small proportion of high-skilled workers earning wages in the right tail of the distribution.

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File URL: http://www.imw.uni-bielefeld.de/n/upload/paper/077e29b11be80ab57e1a2ecabb7da330.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 492.

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Length: 30 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:bie:wpaper:492

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Keywords: Optimal schooling; uncertainty; on-the-job search; wage dispersion;

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  2. Yolanda F. Rebollo-Sanz & Ainara González de San Román, 2013. "Estimation of worker and firm effects with censored data," Working Papers 13.05, Universidad Pablo de Olavide, Department of Economics, revised May 2014.
  3. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University.
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  15. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  16. Bas Jacobs, 2007. "Real Options and Human Capital Investment," CESifo Working Paper Series 1982, CESifo Group Munich.
  17. Rees, Daniel I. & Mocan, H. Naci, 1997. "Labor market conditions and the high school dropout rate: Evidence from New York State," Economics of Education Review, Elsevier, vol. 16(2), pages 103-109, April.
  18. Petrongolo, Barbara & San Segundo, Maria J., 2002. "Staying-on at school at 16: the impact of labor market conditions in Spain," Economics of Education Review, Elsevier, vol. 21(4), pages 353-365, August.
  19. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October.
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