Debt, Human Capital, and the Allocation of Talent

Titan Alon (), Natalie Cox () and Minki Kim ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: In the presence of credit frictions, student debt may prevent graduates from realizing the full returns to a college education by distorting their occupation choice and subsequent early career investments in human capital. This paper quantifies the aggregate size of these labor market distortions by computing the effect of large-scale student debt forgiveness policies. The model’s predictions are disciplined by new empirical evidence showing that more student debt leads to higher initial earnings, but lower returns-to-experience. The quantitative results suggest that rising student debt is having a substantial adverse effect on aggregate labor productivity and the occupational composition of employment.

Keywords: Student debt; occupation choice; wage profiles; credit constraints; misallocation of talent; college; higher education; labor productivity. (search for similar items in EconPapers)
JEL-codes: E0 E2 (search for similar items in EconPapers)
Pages: 61
Date: 2025-01
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-lab
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