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Overworked and Overpaid: The Costs of Learning by Doing

  • Tervio, Marko

In medicine, law, consulting, and many other careers, a significant proportion of human capital is created through profession-specific learning-by-doing (LBD. In the absence of long-term wage contracts, if LDB effects are sufficiently large, then young workers should face a negative wage in return for high future wages. However, if workers are liquidity constrained, then young workers compete away those returns to experience by working inefficiently hard. This inefficiency results in higher lifetime earning, causes older workers to exert too little effort, and tends to lower the observable (monetary) returns to experience. Unlike traditional models, this can explain "career concerns" in professions where effort and ability are observable.

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Paper provided by Institute of Industrial Relations, UC Berkeley in its series Institute for Research on Labor and Employment, Working Paper Series with number qt0d838888.

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Date of creation: 27 Apr 2005
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Handle: RePEc:cdl:indrel:qt0d838888
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  1. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
  2. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
  3. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  4. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
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