On the Industry Specificity of Human Capital and Business Cycles

Abstract

We define specific (general) human capital as the set of occupations whose use is spread in a limited (wide) set of industries. Using the EU Labor Force Survey database, we identify these human capital types and analyze their employment and education. This exercise yields a persistent assignment of occupations into specific and general human capital types. The share of specific human capital varies across countries and has declined over time almost everywhere.

We consider a stylized two-sector model where one of the sectors uses both types of human capital and the other specializes on general human capital. We show that a mean preserving increase in the share of specific human capital reduces (increases) the contribution of shocks in non-specialized sector and increases (reduces) the contribution of shocks in specialized sector to the variance of final output, when sectoral outputs are gross complements (substitutes).

Keywords: Specific and General Human Capital Types, Propagation of Sectoral Shocks, Output Volatility

JEL Classification: E24,E30, I20, J23, J24, O41