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
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3 comments:
Not sure if I'm talented or if I've officially decided my career path, but the job I took was mostly out of convenience (got an offer, close by, good pay, college prepare).
I think there is confusion here between talent and strengths. Each profession requires a different type of strength - focus, achievement, teamwork, woo, etc. I would agree that in professions that require similar types of talent that crossover is possible, but an investment banker or lawyer would not necessarily make a good biologist or computer programmer just because of talent.
Unfortunately I'm out of the ivory tower and without access to Jstor... perhaps the paper addresses my very concerns. But perhaps not, so here goes:
Obviously engineers and entrepreneurs contribute very directly to productivity. But other professionals contribute too, in less direct but equally substantial ways. One talented teacher might inspire many talented entrepreneurs. One talented doctor could prolong the lives many talented engineers (especially since engineers are absent-minded accident-prone, like yours truly).
Investment bankers and lawyers are a bit trickier. If law and finance are indeed zero-sum games, I'd agree that they don't contribute to productivity. But in our imperfect world, perhaps productivity depends to some extent on talented individuals filling these roles. Lawyers may help maintain the order and fairness a productive society depends on. Investment bankers (not that I have any idea what they do) may help steer resources towards the most talented and productive engineers and entrepreneurs, enabling the mechanisms by which productivity is rewarded.
While I'm not one to trust the free market with reckless abandon, just maybe the system is working properly in this case, rewarding lawyers and bankers for their indirect but valuable contributions to productivity.
Thanks for sharing this with us!
pepe
I'm cocky, I assume I'm talented. Yesterday, I thought, "If I wasn't in science, what would I have done instead?" I never came up with an answer. Middle management somewhere, I guess. Neuroscience was the only thing to keep my attention for longer than six weeks. So I made a career out of it.
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