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On-the-job search and optimal schooling under uncertainty and irreversibility

  • Anna Zaharieva

    ()

    (Center for Mathematical Economics, Bielefeld University)

This paper develops a labour market model with on-the-job search, match-specific productivity draws and an endogenous irreversible schooling decision. The choice of schooling is modelled as an optimal stopping problem which gives rise to the equilibrium heterogeneity of workers with respect to the formal education. The optimal schooling decision is characterized by the reservation productivity of students which is a monotonic function of time. Moreover, this reservation productivity is lower in expansions when job-to-job mobility is more intensive. Therefore, the model is compatible with the empirical evidence that expansions have a positive effect on the probability of a school dropout. The schooling density is downward-sloping and the equilibrium wage distribution is right-skewed with a unique interior mode. This means that the majority of workers earn wages in the middle range of the earnings distribution. At the same time there is a small proportion of employees in the beginning of their career with wages in the left tail of the earnings distribution and a small proportion of high-skilled workers earning wages in the right tail of the distribution.

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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-492.pdf
File Function: First version, 2013
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Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 492.

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Length: 30 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:bie:wpaper:492
Contact details of provider: Postal: Postfach 10 01 31, 33501 Bielefeld
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Web page: http://www.imw.uni-bielefeld.de/

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  1. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University.
  2. Kenneth R Troske, 1994. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Working Papers 94-10, Center for Economic Studies, U.S. Census Bureau.
  3. Petrongolo, Barbara & San Segundo, Maria J., 2002. "Staying-on at school at 16: the impact of labor market conditions in Spain," Economics of Education Review, Elsevier, vol. 21(4), pages 353-365, August.
  4. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-60, September.
  5. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  6. Rees, Daniel I. & Mocan, H. Naci, 1997. "Labor market conditions and the high school dropout rate: Evidence from New York State," Economics of Education Review, Elsevier, vol. 16(2), pages 103-109, April.
  7. Yolanda F. Rebollo-Sanz & Ainara González de San Román, 2013. "Estimation of worker and firm effects with censored data," Working Papers 13.05, Universidad Pablo de Olavide, Department of Economics, revised May 2014.
  8. Jesper Bagger & Francois Fontaine & Jean-Marc Robin, 2014. "Tenure, experience, human capital and wages: a tractable equilibrium search model of wage dynamics," CeMMAP working papers CWP12/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Groot, Wim & Oosterbeek, Hessel, 1992. "Optimal investment in human capital under uncertainty," Economics of Education Review, Elsevier, vol. 11(1), pages 41-49, March.
  10. Aparicio Fenoll, Ainhoa, 2010. "High-School Dropouts and Transitory Labor Market Shocks: The Case of the Spanish Housing Boom," IZA Discussion Papers 5139, Institute for the Study of Labor (IZA).
  11. Vincent Hogan & Ian Walker, 2006. "Education Choice under Uncertainty - Implications for Public Policy," Working Papers 200615, School of Economics, University College Dublin.
  12. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  13. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  14. Gautier, Pieter A, 2002. "Unemployment and Search Externalities in a Model with Heterogeneous Jobs and Workers," Economica, London School of Economics and Political Science, vol. 69(273), pages 21-40, February.
  15. Jacobs, Bas, 2007. "Real options and human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 913-925, December.
  16. Natasa Bilkic & Thomas Gries & Margarethe Pilichowski, 2009. "Stay in School or Start Working? - The Human Capital Investment Decision under Uncertainty and Irreversibility," CESifo Working Paper Series 2825, CESifo Group Munich.
  17. David N. DeJong & Beth F. Ingram, 2001. "The Cyclical Behavior of Skill Acquisition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 536-561, July.
  18. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October.
  19. Judd, Kenneth L, 1998. "Taxes, Uncertainty, and Human Capital," American Economic Review, American Economic Association, vol. 88(2), pages 289-92, May.
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