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Can Education Save Europe From High Unemployment?

  • Nicole Walter
  • Runli Xie
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    Empirical observations show that education helps to protect against labor market risks. This is twofold: The higher educated face a higher expected wage income and a lower probability of being unemployed. Although this relationship has been analyzed in the literature broadly, several questions remain to be tackled. This paper contributes to the existing literature by looking at the above mentioned phenomena from a purely theoretic perspective and in a European context. We set up a model with search-and-matching frictions, collective bargaining and monopolistic competition in the product market. Workers are heterogeneous in their human capital level. It is shown that higher human capital increases the wage rate and reduces unemployment risks, which is consistent with empirical observations for European countries.

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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-039.pdf
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    Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-039.

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    Length: 28 pages
    Date of creation: Jun 2008
    Date of revision:
    Handle: RePEc:hum:wpaper:sfb649dp2008-039
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