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Ben-Porath meets Lazear: Lifetime Skill Investment and Occupation Choice with Multiple Skills

Listed author(s):
  • Costas Cavounidis
  • Kevin Lang

We develop a fairly general and tractable model of investment when workers can invest in multiple skills and different jobs put different weights on those skills. In addition to expected findings such as that younger workers are more likely than older workers to respond to a demand shock by investing in skills whose value unexpectedly increases, we derive some less obvious results. Credit constraints may affect investment even when they do not bind it equilibrium. If there are mobility costs, firms will generally have an incentive to invest in some of their workers' skills even when there are a large number of similar competitors, and, in equilibrium, there can be overinvestment in all skills. Worker skill accumulation resembles learning by doing even in its absence. We demonstrate how the model can be simulated to show the effect of a shock to the price of individual skills.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23367.

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Date of creation: Apr 2017
Handle: RePEc:nbr:nberwo:23367
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  1. Audra J. Bowlus & Hiroaki Mori & Chris Robinson, 2016. "Ageing and the Skill Portfolio: Evidence from Job Based Skill Measures," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20161, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
  2. Acemoglu, Daron & Pischke, Jorn-Steffen, 1999. "Beyond Becker: Training in Imperfect Labour Markets," Economic Journal, Royal Economic Society, vol. 109(453), pages 112-142, February.
  3. Flavio Cunha & James J. Heckman, 2008. "Formulating, Identifying and Estimating the Technology of Cognitive and Noncognitive Skill Formation," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
  4. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
  5. Edward P. Lazear, 2009. "Firm-Specific Human Capital: A Skill-Weights Approach," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 914-940, October.
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