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Education policies, pre-college human capital investment and educated unemployment

Author

Listed:
  • Xiangting Hu

    (Harbin Institute of Technology, Shenzhen)

  • Xiangbo Liu

    (Renmin University of China)

  • Chao He

    (East China Normal University)

  • Tiantian Dai

    (Central University of Finance and Economics)

Abstract

This paper employs a search and matching model featuring endogenous pre-college human capital investment to examine how education policies, such as subsidies, scholarships, and college capacity expansion, can affect individuals’ pre-college human capital investment, the college admission threshold and the unemployment rate of the educated. We explicitly model the college admission rule: each individual applies to college by sending her signal to the college. The college determines the admission threshold based on the distribution of signals and its capacity. Only those who send signals above the threshold will be admitted. Because the quality of signals depends on one’s pre-college human capital level, individuals are motivated to invest in pre-college human capital to compete for college admissions. We show that different education policies can deliver contrasting results. There are conditions under which education subsidies and scholarships can increase pre-college human capital investment and lower the unemployment rate of college graduates, while an expansion in the college capacity can yield opposite effects.

Suggested Citation

  • Xiangting Hu & Xiangbo Liu & Chao He & Tiantian Dai, 2020. "Education policies, pre-college human capital investment and educated unemployment," Journal of Economics, Springer, vol. 129(3), pages 241-270, April.
  • Handle: RePEc:kap:jeczfn:v:129:y:2020:i:3:d:10.1007_s00712-019-00676-6
    DOI: 10.1007/s00712-019-00676-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Education; Competition; Human capital; Matching frictions;
    All these keywords.

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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