Overworked and Overpaid: The Costs of Learning by Doing

Abstract: In medicine, law, consulting, and many other careers, a significant proportion of human capital is created throgh profession-specific learning-by-doing (LBD. In the absence of long-term wage contracts, if LDB effects are sufficiently large, then young workers should face a negative wage in return for high future wages. However, if workers are liquidity constrained, then young workers compete away those returns to expereience by working inefficiently hard. This inefficiency results in higher lifetime earning, causes older workers to exert too little effort, and tends to lower the observable (monetary) returns to experience. Unlilke traditional models, this can explain "career concerns" in professions where effort and ability are observable. Source: Institute of Industrial Relations. Institute of Industrial Relations Working Paper Series. Paper iirwps-119-05. Author: Marko Tervio, University of California, Berkeley

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