Human capital portfolios
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.
File(s): File format is application/pdf http://www.frbatlanta.org/documents/pubs/wp/wp1203.pdf
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta Working Paper
Publication Date: 2012
Pages: 50 pages