Globalization and Risky Human-Capital Investment

Globalization is supposed to increase the mobility of highly skilled labor and to reduce governments' scope for redistribution. We show that this increases the private incentives for education and may decrease, but may also increase, the government's incentives to provide education subsidies in a framework in which education investment is risky. Globalization shifts the cost of these subsidies to the less skilled. For the welfare implications of globalization the availability of private insurance is crucial. Welfare unambiguously increases if such markets work.