Working Paper

The Hedgehog’s Curse: Knowledge Specialization and Displacement Loss

Abstract: This paper studies the impact of knowledge specialization on earnings losses following displacement. We develop a novel measure of the specialization of human capital, based on how concentrated the knowledge used in an occupation is. Combining our measure with individual labor histories from the NLSY 79-97 and Norway’s LEED, we show that workers with more specialized human capital suffer larger earnings losses following exogenous displacement. A one standard deviation increase in pre-displacement knowledge specialization increases the earnings losses post-displacement by 3 to 4 pp per year in the US, and by 1.5 to 2 pp per year in Norway. In the US, the negative effect of higher pre-displacement knowledge specialization on post-displacement earnings is driven by the negative impact of knowledge specialization on well-paid outside opportunities. By contrast, this association between outside opportunities and knowledge specialization plays no role in post-displacement earnings losses in Norway, where the negative effect of specialization is in part explained by its association with the routine content and the offshoring probability of the occupation.

Keywords: Earnings Loss; Knowledge Specialization; Unemployment; Human Capital;

JEL Classification: J31; J62; J63;

Access Documents

File(s): File format is text/html
Description: Full Text


Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2022-11-09

Number: 22-31