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Human Capital Investment with Competitive Labor Search

  • Kaas, Leo

    ()

    (University of Konstanz)

  • Zink, Stefan

    ()

    (University of Konstanz)

Registered author(s):

We study human capital accumulation in an environment of competitive search. Given that unemployed workers can default on their education loans, skilled individuals with a larger debt burden prefer riskier but better paid careers than is socially desirable. A higher level of employment risk in turn depresses the skill premium and the incentives to invest in education. The equilibrium allocation is characterized by too much unemployment, underinvestment by the poor, and too little investment in skill-intensive technologies. A public education system funded by graduate taxes can restore efficiency. More generally, differences in education funding can account for cross-country variations in wage inequality.

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File URL: http://ftp.iza.org/dp3722.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3722.

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Length: 36 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in: European Economic Review, 2011, 55 (4), 520-534
Handle: RePEc:iza:izadps:dp3722
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  26. Raquel Fernandez & Richard Rogerson, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 135-164.
  27. Rothstein, Jesse & Rouse, Cecilia Elena, 2011. "Constrained after college: Student loans and early-career occupational choices," Journal of Public Economics, Elsevier, vol. 95(1), pages 149-163.
  28. Moen, Espen R, 1999. "Education, Ranking, and Competition for Jobs," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 694-723, October.
  29. Ortigueira, Salvador, 2006. "Skills, search and the persistence of high unemployment," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2165-2178, November.
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