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Career Concerns and the Nature of Skills†

Career Concerns and the Nature of Skills† AbstractI examine how career concerns are shaped by the nature of productive actions taken by workers. A worker’s skills follow a Gaussian process with an endogenous component reflecting human-capital accumulation. Effort and skills are substitutes both in the output process (as in Holmström 1999) and in the skills technology. The focus is on deterministic equilibria by virtue of Gaussian learning. When effort and skills are direct inputs to production and skills are exogenous, effort can be inefficiently high in the beginning of a career. In contrast, when skills are the only input to production but accumulate through past effort choices, the worker always underinvests in skill acquisition. At the center of the discrepancy are two types of ex post errors that arise at interpreting output due to an identification problem faced by the market. Finally, the robustness of the underinvestment result is explored via variations in the skill-accumulation technology and in the information structure, and policy implications are discussed. (JEL D83, I26, J24, J31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Career Concerns and the Nature of Skills†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20160277
Publisher site
See Article on Publisher Site

Abstract

AbstractI examine how career concerns are shaped by the nature of productive actions taken by workers. A worker’s skills follow a Gaussian process with an endogenous component reflecting human-capital accumulation. Effort and skills are substitutes both in the output process (as in Holmström 1999) and in the skills technology. The focus is on deterministic equilibria by virtue of Gaussian learning. When effort and skills are direct inputs to production and skills are exogenous, effort can be inefficiently high in the beginning of a career. In contrast, when skills are the only input to production but accumulate through past effort choices, the worker always underinvests in skill acquisition. At the center of the discrepancy are two types of ex post errors that arise at interpreting output due to an identification problem faced by the market. Finally, the robustness of the underinvestment result is explored via variations in the skill-accumulation technology and in the information structure, and policy implications are discussed. (JEL D83, I26, J24, J31)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2018

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