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Human capital formation, inequality, and competition for jobs

Author

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  • Daniel Mejía
  • Marc St-Pierre

Abstract

This paper develops a model where heterogeneous agents compete for the best available jobs. Firms, operating with different technologies, rank job candidates in the human capital dimension and hire the best available candidate due to complementarities between the worker´s human capital and technologies used in the production process. As a result, individuals care about their relative ranking in the distribution of human capital because this determines the firm they will be matched with and therefore the wage they will receive in equilibrium. The paper rationalizes a different channel through which peer effects and human capital externalities might work: competition between individuals for the best available jobs (or prizes associated with the relative position of individuals). We show that more inequality in the distribution of endowments negatively affects aggregate efficiency in human capital formation as it weakens competition for jobs between individuals. However, we find that the opposite is true for wage inequality, namely, more wage inequality encourages competition and, as a result, agents exert more effort and accumulate more human capital in equilibrium.

Suggested Citation

  • Daniel Mejía & Marc St-Pierre, 2007. "Human capital formation, inequality, and competition for jobs," Documentos CEDE 4105, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:004105
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    File URL: https://repositorio.uniandes.edu.co/bitstream/handle/1992/8118/dcede2007-21.pdf
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    Citations

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    Cited by:

    1. Román David Zárate, 2013. "Family size and children quality: New evidence and new exogenous shocks in the case of Colombian Households," Documentos CEDE 10588, Universidad de los Andes, Facultad de Economía, CEDE.
    2. Román Andrés Zárate, 2012. "Peer Effects, Cooperation and Competition in Human Capital Formation," Documentos CEDE 9795, Universidad de los Andes, Facultad de Economía, CEDE.
    3. Adolfo Cristobal Campoamor, 2015. "Job competition, employability and incentives for human capital formation," Economics Bulletin, AccessEcon, vol. 35(1), pages 550-560.

    More about this item

    Keywords

    Human Capital; Inequality; Competition; Relative Ranking;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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