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Uncertainty and the Specificity of Human Capital

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

Staff Working Papers from Bank of Canada

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: Economic; Models (search for similar items in EconPapers)
JEL-codes: D92 J24 J41 J62 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2007
New Economics Papers: this item is included in nep-dge and nep-hrm
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:07-57

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