DP18320 The Two Faces of Worker Specialization

• Zsofia Barany Kerstin Holzheu
25 Jul 2023

In this paper, we study whether skills can be both an asset and a liability. We show that the accumulation of specialized skills not only increases the return to a specific activity but it also increases the exposure to labor market risks. Specialized workers, once displaced, might take longer to find a job, as their specialized skills might make them less productive across jobs on average. Yet, once they find a suitable job, that job is likely to be better matched to their skills, increasing job stability and entry wages. We empirically verify this hypothesis using displacement events in French and US data and find evidence for these links.