Unemployment and Increasing Returns to Human Capital
AbstractThis paper studies a model of human capital accumulation with real wage rigidity. It is shown that the arbitrage condition between hiring a skilled versus an unskilled worker may be stated as a positive relationship between their relative unemployment rates. It may be the case that this locus is steep enough to generate increasing returns to education. This may lead to multiple equilibria: a high-education equilibrium may coexist with a low-education equilibrium. In the former, the unskilled are more exposed to unemployment relative to the skilled, as compared with the latter. The two equilibria cannot be Pareto-ranked, but the latter is preferred to the former by workers, while `savers' prefer the high-education equilibrium.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 921.
Date of creation: Feb 1994
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- I2 - Health, Education, and Welfare - - Education
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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- Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.
- Stenberg, Anders & Wikström, Magnus, 2000.
"Higher Education and the Determination of Aggregate Male Employment by Age,"
UmeÃ¥ Economic Studies
520, Umeå University, Department of Economics.
- Anders Stenberg & Magnus Wikstrom, 2004. "Higher Education and the Determination of Aggregate Male Employment by Age," Education Economics, Taylor & Francis Journals, vol. 12(1), pages 87-101.
- Luigi Bonatti, 1999. "Growth, real interest, employment and wage determination," Department of Economics Working Papers 9907, Department of Economics, University of Trento, Italia.
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