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Occupational Choice and the Dynamics of Human Capital, Inequality and Growth

We develop a tractable dynamic Roy model in which workers choose occupations to maximize their lifetime utility. In our setting, a worker's human capital is driven by his labor market choices, given idiosyncratic occupation-specific productivity shocks and the costs of switching occupations. We characterize the equilibrium assignment of workers to jobs and show that the resulting evolution of aggregate human capital across occupations ultimately determines the long-run rate of growth of the economy. We then use our model to quantitatively study the impact of labor-saving technical changes on workers' occupational choices and on the economy's income inequality, job polarization and long-run growth.

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https://doi.org/10.20955/wp.2019.013


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