Student Debt on the Job Human Capital Accumulation

-

Macro Lunch

PCPSE Room 202
United States

Abstract: 

Student borrowing levels have recently become the second-largest form of household debt after residential mortgages in the US. It has been shown that young workers with higher debt initially sort into higher paid jobs, while deferring other decisions, like marriage and home-ownership. 
Little is known, however, on the role of student debt in shaping the career choices of young graduates and their human capital accumulation on the job in the medium to long run. 

I propose a life-cycle search model where heterogeneous risk-averse workers match with firms that differ in their productivity. Workers accumulate human capital when working, but jobs at better firms are harder to get and do not necessarily offer high wages, even if human capital accumulation is faster. Moreover, workers and firms face match quality risk that is increasing in the skill mismatch between firms and workers:  whether human capital accumulation will take place or not becomes known only once they meet. The model predicts that graduates holding less net assets will sort into less productive firms, and accumulate less human capital on the job. As workers get older, the loss in human capital accumulation reflects in lower wage growth.

I will present some supporting evidence, showing that higher student loan debt correlates with lower wage growth using data from the U.S. National Center for Education Statistics, and discuss the opportunity to test this hypothesis in other countries.

More on Luca Mazzone

Luca Mazzone

Luca Mazzone

University of Zurich visiting Penn