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Human Capital Investment with Competitive Labor Search

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  • Kaas, Leo

    ()
    (University of Konstanz)

  • Zink, Stefan

    ()
    (University of Konstanz)

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Abstract

We study human capital accumulation in an environment of competitive search. Given that unemployed workers can default on their education loans, skilled individuals with a larger debt burden prefer riskier but better paid careers than is socially desirable. A higher level of employment risk in turn depresses the skill premium and the incentives to invest in education. The equilibrium allocation is characterized by too much unemployment, underinvestment by the poor, and too little investment in skill-intensive technologies. A public education system funded by graduate taxes can restore efficiency. More generally, differences in education funding can account for cross-country variations in wage inequality.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3722.

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Length: 36 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in: European Economic Review, 2011, 55 (4), 520-534
Handle: RePEc:iza:izadps:dp3722

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Keywords: education finance; investment; directed search;

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