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American Economic Review: Vol. 96 No. 3 (June 2006)

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General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs

Article Citation

Wasmer, Etienne. 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs." American Economic Review, 96(3): 811-831.

DOI: 10.1257/aer.96.3.811

Abstract

Human capital investments are not independent of the aggregate state of labor markets: frictions and slackness of the labor market raise the returns to specific human capital investments relative to general investments. We build a macroeconomic model with two pure strategy regimes. In the pure G-regime, workers invest in general skills. This occurs when they face high turnover labor markets and in the absence of employment protection. The pure 5-regime in which workers invest in skills specific to their job appears when employment protection is high enough. Implications for a characterization of Europe-United States differences are provided in conclusion. (JEL: J63, J30)

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Wasmer, Etienne


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