Human Capital Portfolios
FRB Atlanta Working Paper Series No. 2012-3
50 Pages Posted: 16 May 2012
Date Written: February 2012
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: Suggested Citation