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.
Highlights
Rosen [1] emphasizes that incentives for specialization are shown to arise from increasing returns to utilization of human capital
Workers who are deciding on which skills to specialize in must consider the fixed element embodied in human capital investment and the joint distribution of wages in the economy generated by technological progress
Even though technological change provides incentives to acquire increasingly specialized skills, there are some aspects of technological change that could decrease the incentives for specialization
Summary
Rosen [1] emphasizes that incentives for specialization are shown to arise from increasing returns to utilization of human capital. Workers who are deciding on which skills to specialize in must consider the fixed element embodied in human capital investment (the element highlighted by Rosen [1]) and the joint distribution of wages in the economy generated by technological progress In this way, even though technological change provides incentives to acquire increasingly specialized skills (as pointed out by Becker and Murphy [4]), there are some aspects of technological change that could decrease the incentives for specialization. If technological change generates a negative covariance of wages across different sectors or tasks within sectors of the economy, the incentives to become a generalist are greater In this case, agents could be willing to pay the fixed cost of investing in a second skill in order to reduce their risk exposure.
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