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Learning Your Comparative Advantages

  • Theodore Papageorgiou

    (Penn State University)

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    We introduce an equilibrium labor market model, where workers gradually learn about their unobserved production abilities. While engaged in a productive activity (occupation), workers observe their output and extract information that allows them to make inferences about their unobserved aptitudes. Because workers are learning about themselves, their output informs them not only about their productivity in their current occupation, but about their likely productivity in other occupations as well. As workers acquire more information, they self-select into the occupations in which they expect to perform best, and their wages increase. Returns to experience here capture improved job selection by workers as they sort through occupations and learn about their productive abilities. Our setup can account for the offsetting worker flows across occupations, the within-occupation wage inequality, as well the decline in the probability of occupational switching as workers grow older, that we observe in the data. We use this framework to investigate whether the interaction of learning and search frictions can lead to further decreases in output. Indeed, an increase in the unemployment rate similar to the one experienced by many European countries in the early 1970s is found to reduce the flow of output per employed worker by 1% annually.

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    Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1150.

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    Date of creation: 2009
    Date of revision:
    Handle: RePEc:red:sed009:1150
    Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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    1. McCall, Brian P, 1990. "Occupational Matching: A Test of Sorts," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 45-69, February.
    2. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
    3. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Specificity Of Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 63-115, 02.
    4. Gathmann, Christina & Schönberg, Uta, 2006. "How General Is Specific Human Capital?," IZA Discussion Papers 2485, Institute for the Study of Labor (IZA).
    5. Joshua C. Pinkston, 2006. "A Model of Asymmetric Employer Learning With Testable Implications," Working Papers 390, U.S. Bureau of Labor Statistics.
    6. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
    7. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
    8. Kambourov, Gueorgui & Manovskii, Iourii, 2004. "Rising Occupational and Industry Mobility in the United States: 1968-1993," IZA Discussion Papers 1110, Institute for the Study of Labor (IZA).
    9. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
    10. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, vol. 50(4), pages 811-830, May.
    11. Acemoglu, Daron & Robinson, James A, 1999. "Inefficient Redistribution," CEPR Discussion Papers 2122, C.E.P.R. Discussion Papers.
    12. Jean-Marc Robin & Francois Fontaine & Fabien Postel-Vinay & Jesper Bagger, 2011. "A Feasible Equilibrium Search Model of Individual Wage Dynamics with Experience Accumulation," 2011 Meeting Papers 278, Society for Economic Dynamics.
    13. Kate Antonovics & Limor Golan, 2012. "Experimentation and Job Choice," Journal of Labor Economics, University of Chicago Press, vol. 30(2), pages 333 - 366.
    14. 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.
    15. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
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