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Human capital portfolios

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  • Pedro Silos
  • Eric Smith

Abstract

This paper assesses the trade-off between acquiring specialized skills targeted for a particular occupation and acquiring a package of skills that diversifies risk across occupations. Individual-level data on college credits across subjects and labor-market dynamics reveal that diversification generates higher income growth for individuals who switch occupations whereas specialization benefits those who stick with one type of job. A human capital portfolio choice problem featuring skills, abilities, and uncertain labor outcomes replicates this general pattern and generate a sizable amount of inequality. Policy experiments illustrate that forced specialization generates lower average income growth and lower turnover, but also lower inequality.

Suggested Citation

  • Pedro Silos & Eric Smith, 2012. "Human capital portfolios," FRB Atlanta Working Paper 2012-03, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2012-03
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    Cited by:

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    2. German Cubas & Pedro Silos, 2020. "Social Insurance And Occupational Mobility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 219-240, February.
    3. Josh Kinsler & Ronni Pavan, 2015. "The Specificity of General Human Capital: Evidence from College Major Choice," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 933-972.
    4. David J Deming & Kadeem Noray, 2020. "Earnings Dynamics, Changing Job Skills, and STEM Careers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 1965-2005.
    5. Tobias Schlegel & Uschi Backes-Gellner, 2023. "The role of fields of study for the effects of higher education institutions on regional firm location," Small Business Economics, Springer, vol. 61(4), pages 1587-1656, December.
    6. Seah, Kelvin K.C. & Pan, Jessica & Tan, Poh Lin, 2020. "Breadth of university curriculum and labor market outcomes," Labour Economics, Elsevier, vol. 65(C).
    7. Guy Tchuente, 2016. "High School Human Capital Portfolio and College Outcomes," Journal of Human Capital, University of Chicago Press, vol. 10(3), pages 267-302.
    8. Leighton, Margaret & Speer, Jamin D., 2020. "Labor market returns to college major specificity," European Economic Review, Elsevier, vol. 128(C).
    9. Masashi Tanaka, 2018. "Changing demand for general skills, technological uncertainty, and economic growth," Discussion Papers in Economics and Business 18-02, Osaka University, Graduate School of Economics.
    10. Andrew Rendall & Michelle Rendall, 2014. "Math matters: education choices and wage inequality," ECON - Working Papers 160, Department of Economics - University of Zurich.
    11. Eggenberger, Christian & Rinawi, Miriam & Backes-Gellner, Uschi, 2018. "Occupational specificity: A new measurement based on training curricula and its effect on labor market outcomes," Labour Economics, Elsevier, vol. 51(C), pages 97-107.
    12. Estache, Antonio & Foucart, Renaud, 2021. "On the political economy of industrial, labor and social reforms as complements," European Economic Review, Elsevier, vol. 137(C).
    13. Theodore Papageorgiou, 2022. "Occupational Matching and Cities," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 82-132, July.
    14. Light, Audrey & Schreiner, Sydney, 2019. "College major, college coursework, and post-college wages," Economics of Education Review, Elsevier, vol. 73(C).
    15. Shahid, Pirzada Syed Rizwan, 2023. "Founder's Human Capital and the Entrepreneurial Process Duration," OSF Preprints yf6mg, Center for Open Science.
    16. Bordon, Paola & Fu, Chao, 2015. "College-Major Choice to College-Then-Major Choice," MPRA Paper 79643, University Library of Munich, Germany.
    17. Amit Jain & Will Mitchell, 2022. "Specialization as a double‐edged sword: The relationship of scientist specialization with R&D productivity and impact following collaborator change," Strategic Management Journal, Wiley Blackwell, vol. 43(5), pages 986-1024, May.
    18. Paola Bordon & Chao Fu, 2015. "College-Major Choice to College-Then-Major Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1247-1288.
    19. Theodore Papageorgiou, 2020. "Occupational Matching and Cities," Working Papers 2020-049, Human Capital and Economic Opportunity Working Group.
    20. Jacob Loree, 2019. "Multidimensional Skill Specialization and Mismatch Over the Lifecycle," 2019 Meeting Papers 892, Society for Economic Dynamics.
    21. German Cubas & Pedro Silos & Vesa Soini, 2021. "Risk and the Misallocation of Human Capital," DETU Working Papers 2103, Department of Economics, Temple University.
    22. Light, Audrey & Wertz, Sydney Schreiner, 2022. "Should English majors take computer science courses? Labor market benefits of the occupational specificity of major and nonmajor college credits," Economics of Education Review, Elsevier, vol. 88(C).
    23. Michelle Rendall & Andrew Rendall, 2013. "Math Matters: Student Ability, College Majors, and Wage Inequality," 2013 Meeting Papers 1196, Society for Economic Dynamics.
    24. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).
    25. Ma, Liping & Li, Xin & Zhu, Qiong & Ye, Xiaoyang, 2023. "College-major choice to college-then-major choice: Experimental evidence from Chinese college admissions reforms," Economics of Education Review, Elsevier, vol. 94(C).

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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