Full Citation
Title: Equilibrium Underemployment
Citation Type: Miscellaneous
Publication Year: 2019
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Abstract: This paper develops and calibrates a model of human capital investment in a frictional labor market with two-sided heterogeneity. The model generates underemployment in equilibrium: highly-educated workers are employed in jobs that do not require human capital to be productive. The decentralized equilibrium is never constrained efficient and can exhibit an inefficiently low or high underemployment rate. The model is calibrated to the U.S. economy and used to perform counterfactual policy experiments by increasing education subsidies and student loan borrowing limits. Fully subsidizing education increases the supply of highly-educated workers, the underemployment rate, and welfare. These effects are the result of shifts in the composition of jobs, the types of workers who invest in education, and adjustments in the returns to education that is driven through an aggregate production technology that exhibits diminishing returns to labor.
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Authors: Jackson, Paul
Publisher: University of California, Irvine
Data Collections: IPUMS USA
Topics: Education, Labor Force and Occupational Structure
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