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Human Capital Theory's economic predictions on skill-level

Using Human Capital theory (Becker, others), explain the relationship between skill and unemployment.

Naturally, economists and the public at large usually think of skill-level having having an inverse relationship with unemployment. But you should be able to describe why this is, put it into terms of Human Capital, and perhaps think of some exceptions to the general relationship. This can be conceptualized on both macro and micro levels

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According to Becker (1992), human capital theory provides explanation as to why probability of unemployment is inversely related to one's level of skill. Becker explains that a person's skill is one of several attributes which are enhanced by expenditures on human capital. This might take place in the form of financial outlays on education, or investments of opportunity to increase skill through experience or training, for example. Like any other form of capital, returns are realized in the form of higher demand on one's labor (Becker states that this is robust across economies of varying stages of development).

It is an intuitive point - a rational employer would always prefer a more productive (i.e. more highly skilled) employee, so that profits are maximized (holding wages constant). A ...

Solution Summary

This is a thourogh discussion of the relationship between skill-level and unemployment, as explained by Human Capital theory. The author of this solution answers based partially on the work of Gary Becker (a Nobel prize winner) and Andrew Carswell. The author additional provides creative theoretical exceptions to the broad Human Capital prediction. Many examples are given.

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