American Economic Review: Vol. 104 No. 4 (April 2014)


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Misallocation and Growth

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Jovanovic, Boyan. 2014. "Misallocation and Growth." American Economic Review, 104(4): 1149-71.

DOI: 10.1257/aer.104.4.1149


This paper models growth via on-the-job learning when firms and workers are heterogeneous. It is an overlapping generations model in which young agents match with the old. More efficient assignments lead to faster long-run growth, more inequality, and less turnover in the distribution of human capital. Constant-growth paths are characterized for general functional forms and then, for the Cobb-Douglas case, the transition dynamics are solved analytically when the skill of the young is log-normally distributed and the initial human capital of the old generation is also log-normal. Growth and inequality move together on the transition to the balanced growth path.

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Jovanovic, Boyan (NYU)

JEL Classifications

D83: Search; Learning; Information and Knowledge; Communication; Belief
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
J41: Labor Contracts

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