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

Costas Cavounidis and Kevin Lang

No 23367, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: J01 J24 J3 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-lab
Note: LS
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