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Skill level, Cognitive Ability, Unemployment and Welfare

Author

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  • Larsen, Birthe

    (Department of Economics, Copenhagen Business School)

Abstract

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
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    References listed on IDEAS

    as
    1. Saint-Paul, Gilles, 2002. "Cognitive Ability and Paternalism," IDEI Working Papers 148, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Carneiro, Pedro & Heckman, James J., 2003. "Human Capital Policy," IZA Discussion Papers 821, Institute of Labor Economics (IZA).
    3. 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.
    4. 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.
    5. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August.
    6. 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.
    7. 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.
    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)

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    More about this item

    Keywords

    Education; subsidies; efficiency; unemployment;
    All these keywords.

    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

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