Matching frictions and the divide of schooling investment between general and specific skills

This paper examines the impact of labor market frictions and institutions on the divide of schooling investment between general and specific skills. We offer a simple matching model of unemployment in which individuals determine the scope and intensity of their skills. In partial equilibrium, we show that the severity of market frictions distorts the schooling allocation towards more general skills. Then, we endogenize job creation and argue that changes in labor market institutions may well originate a non-monotonous relationship between unemployment and the divide of skills between specific and general human capital. We also investigate more carefully the impacts of unemployment compensation, minimum wage and firing costs. We suggest that unemployment compensation has an ambiguous impact on the skill divide, while minimum wage and firing costs are detrimental to general skill acquisition.