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Can education save Europe from high unemployment?

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  • Walter, Nicole
  • Xie, Runli

Abstract

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.

Suggested Citation

  • Walter, Nicole & Xie, Runli, 2008. "Can education save Europe from high unemployment?," SFB 649 Discussion Papers 2008-039, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2008-039
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    More about this item

    Keywords

    Human capital; search frictions; collective bargaining; monopolistic competition;
    All these keywords.

    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
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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