LABOR MARKET SEARCH AND SCHOOLING INVESTMENT

Christopher Flinn and Joseph Mullins

International Economic Review, 2015, vol. 56, issue 2, 359-398

Abstract: We generalize a search, matching, and bargaining model to allow individuals to acquire productivity‐enhancing schooling prior to labor market entry. In general, search frictions and weakness in bargaining position contribute to underinvestment in schooling from an efficiency perspective. Using estimates of a general equilibrium version of the model in which firm vacancy creation decisions are included, we find that minimum wages and schooling subsidies improve aggregate welfare, but have very different welfare impacts across the ability distribution. In particular, policies that maximize the average welfare of workers have strongly negative effects on the welfare of the least able.

Date: 2015
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https://doi.org/10.1111/iere.12108

Related works:
Working Paper: Labor Market Search and Schooling Investment (2013)
Working Paper: Labor Market Search and Schooling Investment (2011)
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