Skill Accumulation in the Search Unemployment Model

This paper analyses the correlation between employment duration, unemployment duration and general skill accumulation in a search equilibrium. I show how the level of general skills and the duration of employment are positively correlated, and both variables are negatively correlated with the duration of unemployment spells. With search frictions, general skill accumulation is associated with a hold up problem since it benefits future job vacancies which workers expect to be matched with. However, if vacancies direct their search to workers of different skill levels, workers indirectly internalise this externality. I show how Becker’s general skill finance rule is modified for a search economy. Extensions analyse the decision of whether to accumulate skills through training or education.