It is also possible to find conditions under which equilibrium where either all workers invest in general human capital, or a proportion of workers invest in general human capital and the rest in specific. If the return to investment in general human capital is higher, or if there is some possibility of laid off workers finding another job, the optimal allocation is achieved when all workers invest in general human capital. In the second part of this paper, we examine how the introduction of unemployment insurance can reduce the level of specialization by workers and lead to an increase in the acquisition of general education. By lowering the cost of being unemployed, unemployment insurance helps ensure that all workers investing in general human capital is the unique equilibrium. This result can be seen as a way to mitigate the argument that unemployment insurance is inefficient in regions where the unemployment rate is high.
Temporary layoffs represent a relatively large proportion of total layoffs.
In 1991, around 9 percent of layoffs where temporary, with the proportion being even larger in the manufacturing industry. When firms have some discretion in the layoff process and when workers differ in productivity, information sent to the market by laying off an employee can be quite important, especially in the case of a temporary layoff. In these circumstances, a firm laying off an employee reveals to the market that this worker is not productive enough in the current state of the world. In contrast, by retaining workers, the firm reveals that they are relatively more productive. This information can be valuable to other firms who want to bid away workers, and can have a distortionary impact on a firm's layoff and hiring decisions.