Unemployment and increasing private returns to human capital

Gilles Saint-Paul

Research output: Contribution to journalArticle

Abstract

This paper studies a model of human capital accumulation with real wage rigidity. It is shown that the arbitrage condition between hiring a skilled vs. an unskilled worker may be stated as a positive relationship between their relative unemployment rates. It may be the case that this locus is steep enough to generate increasing returns to education. This may lead to multiple equilibria: a high-education equilibrium may co-exist with a low-education equilibrium. In the former, the unskilled are more exposed to unemployment relative to the skilled, as compared with the latter. The two equilibria cannot be Pareto-ranked, but the latter is preferred to the former by workers, while 'savers' prefer the high-education one.

Original languageEnglish (US)
Pages (from-to)1-20
Number of pages20
JournalJournal of Public Economics
Volume61
Issue number1
DOIs
StatePublished - Jul 1996

    Fingerprint

Keywords

  • Education
  • Human capital
  • Multiple equilibria
  • Real wages
  • Skills
  • Unemployment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this