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Unemployment and Increasing Returns to Human Capital

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  • Saint-Paul, Gilles

Abstract

This paper studies a model of human capital accumulation with real wage rigidity. It is shown that the arbitrage condition between hiring a skilled versus an unskilled worker may be stated as a positive relationship between their relative unemployment rates. It may be the case that this locus is steep enough to generate increasing returns to education. This may lead to multiple equilibria: a high-education equilibrium may coexist with a low-education equilibrium. In the former, the unskilled are more exposed to unemployment relative to the skilled, as compared with the latter. The two equilibria cannot be Pareto-ranked, but the latter is preferred to the former by workers, while `savers' prefer the high-education equilibrium.

Suggested Citation

  • Saint-Paul, Gilles, 1994. "Unemployment and Increasing Returns to Human Capital," CEPR Discussion Papers 921, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:921
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    Citations

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    Cited by:

    1. Anders Stenberg & Magnus Wikstrom, 2004. "Higher Education and the Determination of Aggregate Male Employment by Age," Education Economics, Taylor & Francis Journals, vol. 12(1), pages 87-101.
    2. Luigi Bonatti, 1999. "Growth, real interest, employment and wage determination," Department of Economics Working Papers 9907, Department of Economics, University of Trento, Italia.
    3. Saint-Paul, Gilles, 1996. "Unemployment and increasing private returns to human capital," Journal of Public Economics, Elsevier, vol. 61(1), pages 1-20, July.

    More about this item

    Keywords

    Education; Multiple Equilbria; Unemployment; Wage Rigidity;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I2 - Health, Education, and Welfare - - Education
    • 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

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