Working Paper

Labor Market Pooling and Human Capital Investment Decisions



Amend E & Herbst P (2009) Labor Market Pooling and Human Capital Investment Decisions. SSRN Working Paper Series.

Labor market pooling is considered one of the advantages of agglomerations. This paper presents a model of human capital formation in an imperfectly competitive, pooled local labor market with heterogeneous workers and firms. Firms produce with different technologies requiring diverse skills. Workers specialize into specific skills and accumulate general human capital. While labor market pooling provides static efficiency gains, our results also imply positive long-term effects: Under a diversified structure, firm-specific shocks increase workers' incentives to acquire both general and specific human capital. This not only raises productivity but also strengthens a region's capability to adapt to change.

Human capital; labor market pooling; agglomeration economies; unemployment

JEL codes

  • I20: Education and Research Institutions: General
  • J24: Human Capital; Skills; Occupational Choice; Labor Productivity
  • J41: Labor Contracts

Title of seriesSSRN Working Paper Series
PublisherSocial Science Research Network
Publisher URL

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Dr Patrick Herbst
Dr Patrick Herbst

Senior Lecturer, Accounting & Finance