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Learning Your Comparative Advantages

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  • Theodore Papageorgiou

Abstract

While employed, workers learn their comparative advantage and eventually choose occupations that best match their abilities. This learning process is consistent with a number of key facts about occupational mobility, such as the offsetting worker flows across occupations, the non-random patterns of occupational transitions, and the decline of occupational switching with age. We illustrate how search frictions delay learning and lead to mismatch, thereby reducing worker productivity. Moreover, we explore how different workers perform in different occupations. Are the best workers in one occupation also the best workers in another occupation (one-dimensional model of ability)? Or are some workers good at one occupation and other workers good at a different one (comparative advantage model)? The calibration favours the model of comparative advantage, as opposed to the widely used one-dimensional ability model. We use the calibrated model to investigate how the level of unemployment benefits affects worker productivity.

Suggested Citation

  • Theodore Papageorgiou, 2014. "Learning Your Comparative Advantages," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1263-1295.
  • Handle: RePEc:oup:restud:v:81:y:2014:i:3:p:1263-1295
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    File URL: http://hdl.handle.net/10.1093/restud/rdt048
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