 Human capital investment, credentialing, and wage differentialsMasashi Tanaka Journal of Public Economic Theory, 2020, vol. 22, issue 4, 992-1016 Abstract: This study considers how individuals determine at what ratio they will invest in two different types of education. The first type contributes to the development of labor skills, while the other does not. We refer to the former as human capital investment and the latter as unproductive investment, which improves test scores but has no beneficial effect on students' human capital. We formulate an overlapping‐generations economy in which the rich and poor households invest in both types of education. We find that the ratio of human capital investment to unproductive investment is lower in the economy with medium size of the wage differentials. In a dynamic analysis, we identify two patterns of stable steady states for the dynamics of the wage differentials, namely, no‐inequality and high‐inequality steady states. Further, we show that a rapid increase in the level of skill‐biased technology may cause a switch from a steady state with no‐inequality to one with high inequality. This causes at least a temporary increase in the ratio of unproductive investment during the transition to the new steady state. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:22:y:2020:i:4:p:992-1016 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders More articles in Journal of Public Economic Theory from Association for Public Economic Theory Contact information at EDIRC. |
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