TITLE:
Optimal Consumption and Labor Choices with Learning-by-Doing
AUTHORS:
Marina Di Giacinto, Francesco Ferrante
KEYWORDS:
Human Capital, Learning-by-Doing, Consumption, Labor Supply, Dynamic Programming
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.6,
December
27,
2021
ABSTRACT: The net accumulation of human capital through the
cultivation of cognitive and non-cognitive skills and knowledge is an important
source of change in professional and personal peoples’ life. Past work
experience has a direct effect on wage levels and their growth; thus, it
influences the achievable level of consumption and leisure and lifecycle
wealth. This paper analyzes the relation between labor supply, consumption, and
human capital accumulation in a dynamic learning-by-doing setting. We model in
a continuous-time framework, the optimal control problem of a household that
takes decisions on the level of consumption and labor supplied to maximize
logarithmic utility from consumption and leisure subject to the constraints
arising from the intertemporal accumulation of human and liquid wealth. We
analyze an optimal learning-by-doing program
in a deterministic framework, determine explicitly the optimal control
policies, and comment on their economic implications.