We consider a continuum of workers ranked according to their ability to acquire education, and two firms with different technologies that compete imperfectly in wages to attract these workers. Once employed, each worker bears an education cost proportional to their initial ability, this cost being higher in the high-technology firm. At the Nash equilibrium, we show that unemployed workers are those with the lowest initial abilities. We then study different policies that subsidy either the education cost or wages and compare them. We found that the first best allocation can only be implemented by selective policies. We then analyse second best non-selective policies that do not discriminate between workers and firms and show that, in terms of welfare, subsidizing education costs or wages is strictly equivalent.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2902.
Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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