Working Paper: NBER ID: w23367
Authors: Costas Cavounidis; Kevin Lang
Abstract: We develop a fairly general and tractable model of investment when workers can invest in multiple skills and different jobs put different weights on those skills. In addition to expected findings such as that younger workers are more likely than older workers to respond to a demand shock by investing in skills whose value unexpectedly increases, we derive some less obvious results. Credit constraints may affect investment even when they do not bind it equilibrium. If there are mobility costs, firms will generally have an incentive to invest in some of their workers' skills even when there are a large number of similar competitors, and, in equilibrium, there can be overinvestment in all skills. Worker skill accumulation resembles learning by doing even in its absence. We demonstrate how the model can be simulated to show the effect of a shock to the price of individual skills.
Keywords: No keywords provided
JEL Codes: J01; J24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| younger workers (J29) | investment in skills that see an unexpected increase in value (J24) |
| credit constraints (E51) | investment decisions (G11) |
| firms' investment behavior (D22) | skill accumulation of workers (J24) |
| perceived returns on investment (G11) | actual investment behavior (G11) |