Human Capital and the Business Cycle Effects on the Postgraduate Wage Premium

Gu, Ran (2021): Human Capital and the Business Cycle Effects on the Postgraduate Wage Premium.

Abstract

Postgraduate degree holders experience lower cyclical variation in real wages than those with undergraduate degrees. Moreover, postgraduate jobs require more specific human capital and take longer to adapt to. Using an equilibrium search model with dynamic incentive contracts, this paper attributes the cyclicality of the postgraduate-undergraduate wage gap to the differences in specific capital. Greater specific capital leads to lower mobility, thereby improving risk-sharing between workers and firms. The estimates of the model reveal that specific capital can explain the differences both in labour turnover and in real wage cyclicality between education groups.

• Item Type: MPRA Paper
• Language: English
• Keywords: real wage cyclicality, education, wage premium, specific human capital, wage contract, search
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I24 - Education and Inequality; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search

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