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Human Capital Formation on Skill-Specific Labor Markets

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  • Runli Xie

Abstract

This paper focuses on the dynamic link between skill-specific labor markets with search frictions. Human capital investment is formed through households' endogenous decision, and competes with physical capital investment. Idiosyncratic shock shifts the skilled labor share and changes tightness in both skilled and unskilled markets. Given inelastic labor participation, the model can generate downward-sloping Beveridge curves in aggregate, skilled and unskilled labor markets. Upon a neutral shock, total unemployment decrease is two-staged: firstly with a reduction in unskilled unemployment, and then due to a sharp decline of skilled unemployment when skill substitution dominates. A higher elasticity of substitution between two types of labor leads to higher volatility of the model variables and higher u - v correlation.

Suggested Citation

  • Runli Xie, 2011. "Human Capital Formation on Skill-Specific Labor Markets," SFB 649 Discussion Papers SFB649DP2011-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2011-011
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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2011-011.pdf
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    References listed on IDEAS

    as
    1. Huggett, Mark & Kaplan, Greg, 2011. "Human capital values and returns: Bounds implied by earnings and asset returns data," Journal of Economic Theory, Elsevier, vol. 146(3), pages 897-919, May.
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    More about this item

    Keywords

    skill-specific unemployment; human capital investment; idiosyncratic shock; skill substitution; search and matching;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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