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

Costas Cavounidis, Kevin Lang

NBER Working Paper No. 23367
Issued in April 2017
NBER Program(s):Labor Studies

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.

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Document Object Identifier (DOI): 10.3386/w23367

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