| Abstract: |
"We study a two-sector economy with investments in human and physical capital
and imperfect labor markets. Human and physical capital are heterogeneous.
Workers and firms endogenously select the sector they are active in and choose
the amount of their sector-specific investments. To enter the high-skill
sector, workers must pay a fixed cost that we interpret as a direct cost of
education. Given the distribution of the agents across sectors, at
equilibrium, in each sector there is underinvestment in both human and
physical capital, due to non-contractibility of investments. A second source
of inefficiency is related to the self-selection of the agents into the two
sectors: typically too many workers invest in education. Under suitable
restrictions on the parameters, the joint effect of the two distortions is
that equilibria are characterized by too many people investing too little
effort in the high skill sector. We also analyze the welfare properties of
equilibria and study the effects of several tax policies on the total expected
surplus. In particular, consider the equilibrium associated with a flat labor
income tax. Under suitable restrictions on the parameters, a revenue neutral
progressive change in the marginal tax rates is welfare improving." (author's
abstract, IAB-Doku) ((en)) |