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Human Capital Investment with Competitive Labor Search

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  • Kaas, Leo

    (Goethe University Frankfurt)

  • Zink, Stefan

    (University of Konstanz)

Abstract

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.

Suggested Citation

  • Kaas, Leo & Zink, Stefan, 2008. "Human Capital Investment with Competitive Labor Search," IZA Discussion Papers 3722, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3722
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Darong Dai & Guoqiang Tian, 2020. "On the Efficiency of Wage-Setting Mechanisms with Search Frictions and Human Capital Investment," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 1-40, May.
    2. Mitkova, Mariya, 2020. "Social Optimum in a Model with Hierarchical Firms and Endogenous Promotion Time," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224589, Verein für Socialpolitik / German Economic Association.
    3. Ömer Tuğsal Doruk, 2024. "The dark side of finance: the link between financialisation and labour investment in emerging Asian countries," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-20, December.
    4. Manger, Christian, 2020. "The strategic overuse of student loans," Labour Economics, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    education finance; investment; directed search;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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