Human Capital and Employment Risks Diversification

55 Pages Posted: 10 Jun 2015

See all articles by Pascal St-Amour

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Date Written: June 8, 2015

Abstract

Both educational expenditures and attainment have increased sharply over the last decades, despite rising prices of education, and stagnating income returns to human capital. This paper emphasizes conditional employment risks diversification as additional motivation for education demand. Job risk protection through education is strongly evidenced in the data, yet is absent from the Human Capital (HC) literature, whereas dynamic HC choices by agents are not considered in standard unemployment Search and Matching models. A benchmark HC model is thus modified to allow for lower job displacement risk, and higher re-employment probability, in addition to higher income for the better educated. Numerical solutions for optimal dynamic investment in human capital are consistent with observed patterns, such as unemployment duration dependence (stigma), post-re-employment income loss (scarring), and cyclical co-movements in education expenditures. The effects of permanent shifts affecting human capital returns in employment risks diversification, and income returns are investigated and shown to be consistent with rising educational expenditures and attainment.

Keywords: Demand for education; unemployment duration dependence; unemployment stigma; income scarring; work displacement; re-employment probability

JEL Classification: I26, J24, J64, J65

Suggested Citation

St-Amour, Pascal, Human Capital and Employment Risks Diversification (June 8, 2015). Swiss Finance Institute Research Paper No. 15-18. Available at SSRN: https://ssrn.com/abstract=2616352 or http://dx.doi.org/10.2139/ssrn.2616352

Pascal St-Amour (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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