The Hedgehog’s Curse: Knowledge Specialization and Displacement Loss

80 Pages Posted: 9 Nov 2022

See all articles by Victor Hernandez Martinez

Victor Hernandez Martinez

Federal Reserve Bank of Cleveland

Hans Aasnes Holter

University of Delaware - Economics; University of Oslo - Department of Economics; Nova School of Business and Economics

Roberto Pinheiro

Federal Reserve Bank of Cleveland

Date Written: November 9, 2022

Abstract

This paper studies the impact of knowledge specialization on earnings losses following displacement. We develop a novel measure of the specialization of human capital, based on how concentrated the knowledge used in an occupation is. Combining our measure with individual labor histories from the NLSY 79-97 and Norway’s LEED, we show that workers with more specialized human capital suffer larger earnings losses following exogenous displacement. A one standard deviation increase in pre-displacement knowledge specialization increases the earnings losses post-displacement by 3 to 4 pp per year in the US, and by 1.5 to 2 pp per year in Norway. In the US, the negative effect of higher pre-displacement knowledge specialization on post-displacement earnings is driven by the negative impact of knowledge specialization on well-paid outside opportunities. By contrast, this association between outside opportunities and knowledge specialization plays no role in post-displacement earnings losses in Norway, where the negative effect of specialization is in part explained by its association with the routine content and the offshoring probability of the occupation.

Keywords: Earnings Loss, Knowledge Specialization, Unemployment, Human Capital

JEL Classification: J31, J62, J63

Suggested Citation

Hernandez Martinez, Victor and Holter, Hans Aasnes and Pinheiro, Roberto, The Hedgehog’s Curse: Knowledge Specialization and Displacement Loss (November 9, 2022). FRB of Cleveland Working Paper No. 22-31, Available at SSRN: https://ssrn.com/abstract=4273012 or http://dx.doi.org/10.2139/ssrn.4273012

Victor Hernandez Martinez (Contact Author)

Federal Reserve Bank of Cleveland

East 6th & Superior
Cleveland, OH 44101-1387
United States

Hans Aasnes Holter

University of Delaware - Economics ( email )

Newark, DE 19716
United States

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47-22855108 (Phone)

HOME PAGE: http://sites.google.com/site/hansaholter/

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Roberto Pinheiro

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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