Wage competition with heterogeneous workers and firms

We study imperfect competition in the labor market when both workers and fi rms are heterogeneous. When firms cannot observe workers' skill, firms pay workers equal wages, but workers absorb training costs. When firms can iden tify worker types, firms pay different net wages to different workers. Vote rs select the level of general education that is financed by a lump-sum tax . Workers are on average better off when firms can observe workers' skill f or a given level of general human capital, but the median voter prefers a h igher level of general human capital when firms cannot observe worker types .