IDEAS home Printed from
   My bibliography  Save this paper

Skill level, Cognitive Ability, Unemployment and Welfare


  • Larsen, Birthe

    (Department of Economics, Copenhagen Business School)


This paper examines the implications of that workers may not be able to estimate their true costs of acquiring skills. Consequently, too few workers may acquire skills. This allows for the possibility that subsidizing education is welfare improving. Furthermore, if the presence of skill-biased technological shocks increase unemployment, this may explain why the market it-self cannot respond to this by making it sufficiently attractive to acquire skills. Consequently, the trade-off in-between subsidizing education and thereby reducing unemployment and optimizing welfare may be eliminated. We analyse this issue in a simple educational model and next in a search equilibrium model including a skill choice decision.

Suggested Citation

  • Larsen, Birthe, 2004. "Skill level, Cognitive Ability, Unemployment and Welfare," Working Papers 17-2004, Copenhagen Business School, Department of Economics.
  • Handle: RePEc:hhs:cbsnow:2004_017

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Saint-Paul, Gilles, 2002. "Cognitive Ability and Paternalism," IDEI Working Papers 148, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
    3. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
    4. Carneiro, Pedro & Heckman, James J., 2003. "Human Capital Policy," IZA Discussion Papers 821, Institute for the Study of Labor (IZA).
    5. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August.
    6. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    7. Daron Acemoglu & Joshua Angrist, 1999. "How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws," NBER Working Papers 7444, National Bureau of Economic Research, Inc.
    8. Stephen Cameron & Christopher Taber, 2000. "Borrowing Constraints and the Returns to Schooling," NBER Working Papers 7761, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Education; subsidies; efficiency; unemployment;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:cbsnow:2004_017. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lars Nondal). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.