Schooling Investment in Frictional Labor Markets

25 Pages Posted: 22 Sep 2015 Last revised: 18 Apr 2019

See all articles by Hakki Lee

Hakki Lee

Korea Information Society Development Institute

Seung-Gyu Sim

Aoyama Gakuin University

Date Written: April 17, 2019

Abstract

This paper studies how and to what extent labor market friction affects individuals' schooling decisions. High job-finding rates and low job separation rates encourage schooling investment by extending the expected duration for exploiting the accumulated human capital. High job-to-job transition rates, however, discourage it by increasing the opportunity cost of college enrollment and reducing returns to schooling, measured by the average wage gap between the high school, and university, graduates. Our calibrated model, based on the US labor market data, indicates that the market equilibrium results in over-investment on schooling compared to the efficiency benchmark, due to high expected returns.

Keywords: Labor Market Friction, Schooling Decisions, Returns to Higher Education, Opportunity Cost of Higher Education

JEL Classification: E24, I21, J24, J31, J62

Suggested Citation

Lee, Hakki and Sim, Seung-Gyu, Schooling Investment in Frictional Labor Markets (April 17, 2019). Available at SSRN: https://ssrn.com/abstract=2663050 or http://dx.doi.org/10.2139/ssrn.2663050

Hakki Lee (Contact Author)

Korea Information Society Development Institute ( email )

18, Jeongtong-ro
Deoksan-myeon
Jincheon-gun, PA Chungcheongbuk-do 15260
Korea, Republic of (South Korea)
+821045108697 (Phone)

Seung-Gyu Sim

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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