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The Role of Wage Structure as Implicit Insurance on human Capital in Developed Versus Underdeveloped Countries

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  • Ljungqvist, L.

Abstract

This paper explores the role of wage structure as implicit insurance on human capital. It is shown that smaller wage differentials in the developed world can be welfare-enhancing by providing implicit insurance while larger wage differentials in underdeveloped countries make investments in human capital riskier. In other words, the students in a developed country are insured against poor educational outcomes through the existence of well-paid alternative employments which are not present in the economy of a less developed country. These results arise in a general equilibrium model when there are no insurance markets for human capital.
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Suggested Citation

  • Ljungqvist, L., 1992. "The Role of Wage Structure as Implicit Insurance on human Capital in Developed Versus Underdeveloped Countries," Working papers 9227, Wisconsin Madison - Social Systems.
    • Handle: RePEc:att:wimass:9227
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