Model Of Occupational Choice Research Articles

Why Do People Stay Poor?

Abstract There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent, or motivation. The poverty traps view emphasizes differences in opportunities that stem from access to wealth. To test these views, we exploit a large-scale, randomized asset transfer and an 11-year panel of 6,000 households who begin in extreme poverty. The setting is rural Bangladesh, and the assets are cows. The data support the poverty traps view—we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses), and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers, which create better jobs for the poor, are an effective means of getting people out of poverty traps and reducing global poverty.

From employee to entrepreneur: Learning, employer size, and spinout dynamics

Most new firms are founded by former employees of existing firms – spinouts. This paper explores how existing firms shape the entry and post-entry dynamics of spinouts and studies the aggregate implications of this relationship. Using micro-data from Mexico, I show that employees from small firms are more likely to form spinouts than employees of large firms. In addition, spinouts from large employers start at a larger scale and grow faster than spinouts from small employers. To reconcile these patterns, I develop a model of occupational choice and firm dynamics in which employees can learn from their employers. Using a calibrated version of the model, I analyze the implications of the link between employer size and spinout dynamics for macroeconomic outcomes within and across economies. I argue that learning efficiency – interpreted as management quality – is not only salient for understanding cross-country differences in spinout entry but also variation in the firm size distribution and output per worker. I also show that employee learning has meaningful and long-lasting implications for the creation of new firms and for workers in response to policies that target existing firms. Taken together, this paper establishes a connection between incumbent and entrant firms and shows that it is important for aggregate outcomes.

The Kansas tax experiment: The matter of legal form of organization

Using a dynamic stochastic occupational choice model with heterogeneous firms, this paper studies a sweeping business tax-cut program enacted in the State of Kansas during 2012–2016. This paper finds that “The Kansas Tax Experiment” distorts entrepreneurial choice of legal form of organization (LFO), and encourages the adoption of the pass-through status over the C-corporate legal form. Because pass-through businesses face more constraints on access-to-capital, the policy reduces aggregate productive efficiency and leads to declines in output, capital formation, and employment growth. This article highlights the importance of considering LFO choice when making a business tax policy change.

Dependent self-employment across Europe: involuntariness, country’s wealth and labour market institutions

ABSTRACT This article investigates the degree of involuntariness in the entrepreneurial activity of the dependent solo self-employed, as well as its association with the country’s wealth and labour market institutions. Using the unique information available in the 2017 European Labour Force Survey (EU-LFS) for 29 countries, we can properly identify the dependent solo self-employed and analyse to what extent they behave in accordance with an occupational choice model when making their self-employment decision. For that, we account for the reasons why they enter into self-employment (voluntarily or involuntarily either out of necessity or requested by the former employer). The results indicate that involuntary self-employment, mostly due to being required by previous employer, significantly increases the probability of being dependent solo versus non-dependent self-employed. The wealthiest countries have a lower incidence of this group of workers, mainly if they are involuntary self-employed. Moreover, labour market institutions that decrease the flexibility of paid employment tend to increase the incidence of dependent solo self-employment. These results point to this group of workers being particularly vulnerable with the degree of vulnerability significantly increasing for those self-employed with a lesser degree of occupational choice.

Nonlinear occupations and female labor supply over time

Long hours worked associated with higher hourly wages are common to many occupations, known as nonlinear occupations. Over the last four decades, both the share of workers in nonlinear occupations and their relative wage premium have been increasing. Females in particular have been facing rising experience premiums, especially in these types of occupations. We quantitatively explore how these changes have affected the female labor supply over time using a quantitative, dynamic general equilibrium model of occupational choice and labor supply at both the extensive and intensive margins. Our decomposition analysis finds that rising experience premiums are important in explaining the intensive margin of female labor supply, which has continued to increase even in the most recent period. Meanwhile, technical changes biased toward nonlinear occupations help to explain recent stagnating female employment rates. Finally, a counterfactual experiment suggests that, if the barrier aspects of nonlinearities had instead gradually vanished, female employment over this same time period would have been considerably higher at the expense of significantly lower labor supplies at the intensive margin.

Investigating the role of competing wage opportunities in truck driver occupational choice

AbstractA perceived driver shortage causing difficulty in hiring and retaining qualified drivers threatens carrier productivity and profitability. Logistics literature concerning driver turnover has focused on three primary groups of factors contributing to the driver turnover: driver demographics, manager quality, and work environment. A key consideration, however, is that drivers have an outside option to work in other industry‐occupations. We leverage the Roy model of occupational choice to develop hypotheses regarding the effects of wages and tenure on workers’ occupational choice. To test our theory, we conduct a series of econometric studies on a panel data set we assemble from publicly available data sets. Our results show that relative wages strongly influence the choice of whether to drive a truck for a living. A particularly important finding is that the effect of relative wages varies significantly across industry‐occupations. In fact, contravening industry wisdom that wages are insufficient to attract qualified workers, wage elasticities are greater in trucking than in competing industry‐occupations, such as construction or retail. These results persist after accounting for a wage–tenure interaction. This indicates that the persistent “driver shortage” faced by the industry is the result of wages failing to keep pace with wage increases in competing industry‐occupations.

Offshoring, computerization, labor market polarization and top income inequality

This paper proposes a model of occupational choice with heterogeneous agents in terms of human capital to quantify the role of offshoring and computerization in labor market polarization and increased top income inequality. We find that both offshoring and computerization played a major role regarding labor market polarization in the US over the period 1975–2008. We further show that the last decades can be decomposed into two subperiods. Computerization is the main driver of labor market polarization from 1975 to the mid 1990s, after which globalization (through decreased costs of offshoring) explains more than 70% of job and wage polarization. Our model can also explain around 40% of the observed increase in top income inequality since 1975.

Solo self-employment, entrepreneurial subjectivity and the security–precarity continuum: Evidence from private tutors in the supplementary education industry

Entrepreneurship is regarded by policy makers and politicians as an accelerant for economic development. Economic geography demonstrates that rather than stimulating entrepreneurship in general, policy makers should support specific forms of entrepreneurship that fuel wider growth. The paper's original contribution is to insist that entrepreneurship research must also explore less growth-oriented, but crucially very widespread, forms of entrepreneurial activity. The paper therefore places solo self-employment – the self-employed without employees – centre stage as an exemplar of this trend. Research is presented on private tutors who run businesses from home, offering children one-to-one tuition in the burgeoning supplementary education industry. The paper scrutinises the causes, configuration and consequences of such solo self-employment as an economically marginal, but numerically dominant, form of entrepreneurship. In so doing, it makes three conceptual advances in the exploration of heterogeneous entrepreneurship. First, in examining why individuals become self-employed, the paper moves beyond classic efforts to understand entrepreneurship through binary push/pull mechanisms in models of occupational choice. Instead, the analysis demonstrates the importance of risk in entrepreneurship and paid employment, highlighting the multiple pathways into solo self-employment as opportunities and constraints coalesce in individual's lives. Secondly, in considering how the solo self-employed think about business, the research breaks through conventional definitions of entrepreneurship to demonstrate that solo self-employment involves a distinctively entrepreneurial subjectivity and practices. Thirdly, by investigating the consequences of solo self-employment, the findings transcend dualist interpretations of self-employment as the realm of entrepreneurial wealth or economic precarity, highlighting instead a security–precarity continuum in immediate and long-term outcomes.

Revenue diversion, the allocation of talent, and income distribution

We study an equilibrium model of “revenue diversion” by management and its effects on talent allocation and the earnings distribution. In our occupational choice model with “workers” and “managers”, the talent allocation depends on earnings across occupations. Revenue diversion makes the allocation inefficient. It contributes, beyond productivity differentials, to income inequality and the Pareto tail of the income distribution. Any “diverted” revenue accrues to a small fraction of the population, and therefore noticeably impacts inequality, as illustrated in our calibration. We briefly introduce capital, allowing management to divert from both workers and capital, and also complementarity between workers and management.

Skill-Biased Entrepreneurial Decline

The U.S. is undergoing a long-term decline in entrepreneurship. We show that this slowdown in entrepreneurship has been more pronounced for skilled individuals – those with at least a college degree. We propose that this skill-biased decline is a response to the rise in worker skill premium that occurred over the same period. In support of this, we document that earnings for workers grew faster than entrepreneurs, particularly for skilled individuals, discouraging the pursuit of entrepreneurship relative to wage employment. To quantify the impact of the skill premium on entrepreneurship, we develop a model of occupational choice that features worker heterogeneity. In the model, an increase in the skill premium – driven by skill-biased technological change – contributes little in lowering entrepreneurship. Instead, around 70% of the observed decline in entrepreneurship is driven by skill-neutral technological change and a rising share of college graduates. The rising skill premium interacts with these forces and fully explains the skill-biased nature of the decline. Further, by shifting the composition of entrepreneurs towards relatively low productivity entrepreneurs, an increase in the skill premium lowers average entrepreneurial productivity. This suggests an integral role for the changing income structure of workers in driving the broader decline in business dynamism in the U.S.

Career Paths with a Two-Body Problem: Occupational Specialization and Geographic Mobility

We develop a model of joint job search and occupational choice in which job opportunities can be incompatible inside the couple. Typically, incompatibilities may arise because jobs are not in the same location. We show that the existence of incompatible jobs pushes some couples to sacrifice the career of one partner. The model predicts occupational switches throughout the career and at the time of couple formation. Gendered equilibria, whereby all women (or men) choose the accommodating occupation, may arise. Any element of ex-ante unfavorable gender gaps—for instance, due to discrimination or norms—is amplified and can generate large systemic differences in gender composition between occupations.

Immigration and Occupational Comparative Advantage

Job choice by high-skilled foreign-born workers in the US correlates strongly with country of origin. We apply a Frechet-Roy model of occupational choice to evaluate the causes of immigrant sorting. In a gravity specification, we find that revealed comparative advantage in the US is stronger for workers from countries with higher education quality in occupations that are more intensive in cognitive reasoning, and for workers from countries that are more linguistically similar to the US in occupations that are more intensive in communication. Our findings hold for immigrants who arrived in the US at age 18 or older (who received their K-12 education abroad) but not for immigrants who arrived in the US as children (who received their K-12 education domestically). We obtain similar results for immigrant sorting in Canada, which supports our interpretation that origin-country education quality, rather than US immigration policy, is what drives sorting patterns. In counterfactual analysis, we evaluate the consequences of reallocating visas for college-educated immigrants according to origin-country education quality.

Gross Labor Market Flows, Self-Employment, and Unemployment Insurance

In the data, entrepreneurship contributes to the micro and macro-level patterns of gross labor market flows and the selection into that occupation is highly responsive to labor market policy changes. Using an occupational choice model of employment, unemployment, and entrepreneurship, we show that search frictions over all three occupations and a technology letting entrepreneurs produce with their own labor, business capital, or both, are pivotal in rationalizing observed aggregate gross flows and behaviors along the wealth and ability dimensions. The responsiveness of our model flows to variations in unemployment insurance generosity is consistent with US empirical estimates. Changes in the relative riskiness of occupations drive this responsiveness. In turn, beyond the direct effects on unemployment, large reallocations between entrepreneurship and employment appear, shaping aggregate occupational shares. Using our framework, we show that the successive unemployment insurance extensions during the Great Recession have decreased the entrepreneurship rate by 0.4pp.

Why Do People Stay Poor?

There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent or motivation. The other, the poverty traps view, differences in opportunities which stem from access to wealth. To test between these two views, we exploit a large-scale, randomized asset transfer and an 11-year panel on 6000 households who begin in extreme poverty. The setting is rural Bangladesh and the asset is cows. The data supports the poverty traps view - we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses) and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers which create better jobs for the poor are an effective means of getting people out of poverty traps and reducing global poverty. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Progressive Income Tax and Comparative Advantage in Trade

We show in the world trade data that countries with more progressive personal income tax system are less likely to have comparative advantage in industries that employ a greater share of high-income occupations, such as high-tech industries and professional services. Moreover, when countries increase their income tax progressiveness over time, they lose comparative advantage in sectors that use high-paying occupations intensively. We propose two theoretical mechanisms to explain these empirical observations: one is the occupational choice model based on the trade-off between the wage and leisure in the Heckscher-Ohlin framework; the other is the Heckscher-Ohlin model with international immigration of high income workers. Both models demonstrate that progressive income tax pushes workers away from high-income occupations and undermines the comparative advantage in industries that rely heavily on these occupations. Policy makers need to consider the side effect of income tax on industry competitiveness in the global market when fighting inequality.

An exploration of occupational choices in adolescence: A constructivist grounded theory study

Background Adolescence is a critical period within the life course, for developing adult occupational competencies and health behaviours. Few studies have considered how 16–17 year olds choose activities and behaviours from an occupational perspective. Aim and objectives To explore how adolescents aged 16–17 years old make choices about their daily occupations to inform a theoretical model of occupational choice. Materials and methods About 27 secondary school students aged 16–17 years attended one of six focus groups. Transcripts were analyzed using constructivist grounded theory, informing the iterative development of a theoretical model of occupational choice. Results Adolescent occupational choice occurred in response to experiencing needs, and was characterized by ‘weighing up’ and ‘juggling’ the following four key domains: ‘Appraising values and priorities’, ‘Interacting with the situational context’, ‘Exploring skills and occupational repertoire’ and ‘Considering time factors’. A developing sense of responsibility and autonomy for occupational choices was described, leading to the development of the future occupational self. Conclusions and significance A theory illuminating how adolescents make choices was developed. The theory aligns with existing developmental literature and provides unique insights, from an occupational science perspective, on the conscious process by which adolescents make, develop and adapt choices about the occupations they do considering contextual and individual opportunities and constraints.

Unequal we stand: Human Capital and Occupational Choice over the Life cycle

There are large differences in the amount of wealth held by different households in the US within and between age groups. I rationalize these features by building an occupational choice model where individuals endogenously accumulate entrepreneurial human capital via learning-by-doing process. The need to overcome borrowing constraints to start up or to scale up a venture provides incentive for high saving rates for would-be entrepreneurs and entrepreneurial households as compared to paid workers, and during their business spell entrepreneurial households acquire a specific human capital which enhance their future productivity and reduce their turnover rate. Therefore, households end up very unequal with respect to wealth and income within age or between age cohorts. Young individuals experiment higher inequality given that they face stringent entry cost preventing them to become entrepreneurs. Business experience emerges as an important complementary driver for wealth and income dispersion among individuals.

Financial Frictions and Firm Informality

In this paper we build a model of occupational choice with informal production and progressive income taxation. We calibrate the model to the Brazilian economy to evaluate the impact of removing financial frictions on informality. We find that financial deepening leads to a drop in the size of the informal sector (from 37 percent to 22 percent of official GDP), to an increase in measured TFP (by 4 percent), to an increase in official GDP (by 27 percent), to a decrease in tax evasion (by 17 percent) and to an increase in fiscal revenues (by 15 percent). When assessing the response of this policy at different levels of financial development, we find a non-linear relationship between the credit-to-GDP ratio on the one hand, and either the size of the informal economy, or GDP per capita on the other hand. We test these features with cross-country data and find evidence in favor of both types of non-linearity. We also investigate changes in the income tax progressitivity as an alternative policy and find it to be more effective in countries with a medium to high level of financial markets development.

A dynamic model of personality, schooling, and occupational choice

This paper develops a dynamic model of schooling and occupational choices that incorporates personality traits, as measured by the “big five” traits. The model is estimated using the HILDA dataset from Australia. Personality traits are found to play an important role in explaining education and occupation choices over the lifecycle. Results show that individuals with a comparative advantage in schooling and white‐collar work have, on average, higher cognitive skills and higher personality trait scores. Allowing personality traits to evolve with age and with schooling proves to be important to capturing the heterogeneity in how people respond to educational policies. The estimated model is used to evaluate two education policies: compulsory senior secondary school and a 50% college tuition subsidy. Both policies increase educational attainment and also affect personality traits.

Selective Migration, Occupational Choice, and the Wage Returns to College Majors

I examine the extent to which the returns to college majors are influenced by selective migration and occupational choice across locations in the US. To quantify the role of selection, I develop and estimate an extended Roy model of migration, occupational choice, and earnings where, upon completing their education, individuals choose a location in which to live and an occupation in which to work. In order to estimate this high-dimensional choice model, I make use of machine learning methods that allow for model selection and estimation simultaneously in a non-parametric setting. I find that OLS estimates of the returns to business and STEM majors relative to education majors are biased upward by 15% on average. Using estimates of the model, I characterize the migration behavior of different college majors and find that migration flows are twice as sensitive to occupational concentration as they are towage returns.