Human Capital, Local Labor Markets and Regional Integration
This paper investigates the impact of regional integration on the incentives for local governments to finance general human capital in a context of oligopsonistic labor markets, where firm’s specific skills are obtained through specific training. General human capital increases both a worker’s productivity (productivity effect) and its ability to learn new firm’s specific skills (flexibility effect). For symmetric regions, integration leads to a “race to the top” or to a “race to the bottom” in local public educational policies depending on whether the productivity effect dominates or not the flexibility effect. The paper discusses also the effects of integration on regional wages, intra-regional wage inequalities and integration between regions different in size or productivity.
KeywordsHuman Capital Regional Integration Productivity Effect Market Imperfection Local Labor Market
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