Abstract

Educational and skill divisions among workers are an increasingly important political cleavage in advanced democracies. We provide the first experimental analysis of the effects of unemployment risk and unemployment insurance generosity on workers’ investment in job-specific skills. Using both laboratory and online samples, we find that, even in highly permissive contractual environments, more generous unemployment insurance leads to a greater level of investment in task-specific skills that risk obsolescence. Our experiment provides evidence supporting a key part of the “Varieties of Capitalism” approach to political economy while also finding several behavioral deviations from standard human capital theory.