Working Paper: CEPR ID: DP13574
Authors: Mark Gradstein
Abstract: Mismatches in the labor market, specifically because of underrepresentation of various population groups, carry significant economic cost. In this paper we argue, using a simple analytical model, that an additional cost component is related to the effect of such underrepresentation on incentives to invest in human capital, which results in a mutual feedback relationship between the labor market and the skill acquisition market and may lead to economy’s divergence. Further, under increasing returns to scale in human capital, it is shown that an initially advantaged group has an incentive to minimize the bias against the disadvantaged group, and that political enfranchisement is the means to achieve a commitment to such a policy. It is argued that this is consistent with empirical regularities.
Keywords: Talent; Mismatch; Group Bias; Human Capital; Political Enfranchisement
JEL Codes: D31; D72; J71; J78; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market biases (J79) | reduced incentives for human capital investment (J24) |
| reduced incentives for human capital investment (J24) | economic divergence (F62) |
| political enfranchisement (D72) | reduced labor market bias (J79) |
| reduced labor market bias (J79) | enhanced skill acquisition (J24) |
| political enfranchisement (D72) | enhanced skill acquisition (J24) |