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

  • Etienne Wasmer

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)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 3 (June)
Pages: 811-831

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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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