Education and Income Inequality: The Role of a Social Protection System

In this paper we aim to understand how unemployment benefits may affect investment in education when the latter is characterized by uncertain returns. This is done in an overlapping generations model in which endogenous growth is introduced through human capital accumulation. We develop a numerical example of the model in order to reproduce some key differences between the European versus the North American economy; differences that, according to this model, result from the different degree of social protection characterizing both economies.