Human capital formation on skill-specific labor markets

Runli Xie

No 2011-011, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: Human capital investment is formed through households' endogenous decision, and competes with physical capital investment. Idiosyncratic shock shifts the skilled labor share and changes tightness in both skilled and unskilled markets. Given inelastic labor participation, the model can generate downward-sloping Beveridge curves in aggregate, skilled and unskilled labor markets. Upon a neutral shock, total unemployment decrease is two-staged: firstly with a reduction in unskilled unemployment, and then due to a sharp decline of skilled unemployment when skill substitution dominates. A higher elasticity of substitution between two types of labor leads to higher volatility of the model variables and higher u - v correlation.

Keywords: skill-specific unemployment; human capital investment; idiosyncratic shock; skill substitution; search and matching (search for similar items in EconPapers)
JEL-codes: E24 E32 J24 J63 (search for similar items in EconPapers)
Date: 2011
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