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Human capital portfolios

Author

Listed:
  • Pedro Silos
  • Eric Smith

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.

Suggested Citation

  • Pedro Silos & Eric Smith, 2012. "Human capital portfolios," FRB Atlanta Working Paper 2012-03, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2012-03
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    File URL: http://www.frbatlanta.org/documents/pubs/wp/wp1203.pdf
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    References listed on IDEAS

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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