Uncertainty and the Specificity of Human Capital

Martin Gervais (), Igor Livshits () and Cesaire Meh ()

Discussion Paper Series In Economics And Econometrics from University of Southampton, Economics Division, School of Social Sciences

Abstract: This paper studies the choice between general and specific human capital. A trade-off arises because general human capital, while less productive, can easily be reallocated across firms. Accordingly, the fraction of individuals with specific human capital depends on the amount of uncertainty in the economy. Our model implies that while economies with more specific human capital tend to be more productive, they also tend to be more vulnerable to turbulence. As such, our theory sheds some light on the experience of Japan, where human capital is notoriously specific: while Japan benefited from this predominately specific labor force in tranquil times, this specificity may also have been at the heart of its prolonged stagnation.
Keywords; Uncertainty; Labor Contracts; Specific Human Capital
JEL Classification: J24; J41; J62; D92

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Related works:
Working Paper: Uncertainty and the Specificity of Human Capital (2007)
Journal Article: Uncertainty and the specificity of human capital (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:stn:sotoec:0713

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