TITLE:
Private Incentives for Specialization in a Changing and Unpredictable Labor Market
AUTHORS:
Francisco Parro
KEYWORDS:
Specialization, Human Capital, Technological Change
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.2,
March
25,
2015
ABSTRACT: Technological change is a distinctive characteristic of modern labor
markets. New technologies change the demand for different skills in the labor
market and thus introduce uncertainty in the wage structure that agents will
face in the future. In this way, technological change affects agents decisions
about which skills to invest in. In this paper, I study how labor market
uncertainty arising from technological change influences the private incentives
for specialization. I show that in a world populated by risk-averse agents,
technologies that generate a positive covariance of wages across sectors or
tasks within sectors will strengthen the incentives for specialization, whereas
technological progress that generates a negative covariance of wages will generate
strong private incentives for agents to become generalists. Therefore, there is
no unique relationship between technological progress and specialization. The
nature of the new technologies introduced in the labor market is what matters.