Talented People and the Careers They Choose

In the paper "The Allocation of Talent: Implications for Growth" (1991), the authors develop a model which shows that, if all we care about is economic growth, the most talented people should not become investment bankers or lawyers.

The idea is that economic growth occurs through technological developments and the corresponding increases in productivity, which don't really occur through the practice of finance and law. The problem is when talented individuals, who would improve productive technology the most, are attracted to other professions if they offer higher returns to talent. If this happens, then the economy is growing at a slower rate than it should, and is thus we have an inefficient outcome.

One key assumption here is that talent is unidimensional, that the best lawyers also make the best engineers. If the best engineers and entrepreneurs are not attracted to other professions, then the growth rate is still the best it can be.

A recent article in the NYTimes, "The Falling-Down Professions," discusses how the returns, monetary and otherwise, to law and medical careers are becoming relatively smaller than others. This would be good news to our model for economic growth if it moved talented individuals into the entrepreneurial and engineering professions, internet startups included, but not if these individuals moved into the world of finance.

So the question becomes, talented individuals, what went into deciding the career or career path you are in? Are you doing work that fulfills you the most, earns you the most, gives you the most flexibility? Was it the easiest career path to go into, based on your background and connections? Do you buy any of this?


References:
The Allocation of Talent: Implications for Growth
Kevin M. Murphy, Andrei Shleifer, Robert W. Vishny
The Quarterly Journal of Economics, Vol. 106, No. 2 (May, 1991), pp. 503-530

Introduction to the Binding Constraint

The goals of this blog are to discuss economic theory as it relates to our society, generate hypotheses and models, and discuss how such hypotheses could be tested. Any comments are welcome.