Bookworms versus Party Animals: An Artificial Labor Market with Human and Social Capital Accumulation

Abstract

Data show that educated workers earn higher wages and face lower unemployment rates. Economists believe this is due to improvements in human capital while sociologists believe that social capital (or network formation) developed at school is important. While these may serve as reasons why schooling benefits workers, how education generates these outcomes is often overlooked. This paper builds an agent-based computational model that features human and social capital accumulation, formal schooling and on-the-job training, labor market search and durable contracts to explain how the linkages between educational attainment, labor market outcomes and economic performance are generated. Sample simulations of the artificial market show how human capital can improve outcomes for workers (and the economy as a whole), but imply social capital alone is deficient. In other words, if human capital and social capital compete to explain of the benefits of education, human capital wins.