Human Capital and Market Size

Cecilia Vives

No 19436, IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: This paper studies how the size of the labour market aff ects workers' decision to invest in human capital. We consider a model of mismatch where firms rank workers according to their level of skills. The matching process operating in the market has the property that the job fi nding probability of workers depends on market size, market tightness and their ranking. An interesting feature is that, while the job finding probability of workers with a given rank di ffers with market size, the probability of workers with a given level of human capital is constant with the size of the market. The model is consistent with several facts highlighted in empirical studies: In bigger markets the distribution of human capital is more unequal and the returns to skill are higher. We fi nd numerically that the mean level of human capital increases with market size.

Keywords: human; capital; skill; distribution; city; size; matching (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-hrm
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Journal Article: Human capital and market size (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehu:ikerla:19436

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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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