Ben-Porath Meets Lazear: Microfoundations for Dynamic Skill Formation

Costas Cavounidis and Kevin Lang

Journal of Political Economy, 2020, vol. 128, issue 4, 1405 - 1435

Abstract: We provide microfoundations for dynamic skill formation with a model of investment in multiple skills, when jobs place different weights on skills. We show that credit constraints may affect investment even when workers do not exhaust their credit. Firms may invest in their workers’ skills even when there are many similar competitors. Firm and worker incentives can lead to overinvestment. Optimal skill accumulation resembles—but is not—learning by doing. An example shows that shocks to skill productivity benefiting new workers but lowering one skill’s value may adversely affect even relatively young workers, and adjustment may be discontinuous in age.

Date: 2020
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