Human Capital Portfolios

FRB Atlanta Working Paper Series No. 2012-3

50 Pages Posted: 16 May 2012

See all articles by Pedro Silos

Pedro Silos

Federal Reserve Bank of Atlanta

Eric Smith

University of Essex - Department of Economics

Date Written: February 2012

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.

Keywords: Human capital, occupational choice, income inequality

JEL Classification: J24, E24

Suggested Citation

Silos, Pedro and Smith, Eric, Human Capital Portfolios (February 2012). FRB Atlanta Working Paper Series No. 2012-3. Available at SSRN: https://ssrn.com/abstract=2060664 or http://dx.doi.org/10.2139/ssrn.2060664

Pedro Silos (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-498-8630 (Phone)
404-498-8956 (Fax)

Eric Smith

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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