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General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs

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  • Etienne Wasmer

Abstract

Human capital investments are not independent of the aggregate state of labor markets: frictions and slackness of the labor market raise the returns to specific human capital investments relative to general investments. We build a macroeconomic model with two pure strategy regimes. In the pure G-regime, workers invest in general skills. This occurs when they face high turnover labor markets and in the absence of employment protection. The pure 5-regime in which workers invest in skills specific to their job appears when employment protection is high enough. Implications for a characterization of Europe-United States differences are provided in conclusion. (JEL: J63, J30)

Suggested Citation

  • Etienne Wasmer, 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs," American Economic Review, American Economic Association, vol. 96(3), pages 811-831, June.
  • Handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:811-831
    Note: DOI: 10.1257/aer.96.3.811
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    More about this item

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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