Monday, December 28, 2009

Human Capital Misallocation

Tyler Cowen's recent post touches on a topic that I think one of the chief problems of the human race: human capital misallocation. Cowen is much more sanguine than I am:
My view is that people who are born into a reasonably good educational infrastructure get exposed repeatedly -- albeit briefly -- to lots of the activities which might intrigue them. If the activity is going to click with them, it has the chance. To borrow the initial example, most high schools and junior high schools have chess clubs and not just in the wealthiest countries. Virtually everyone is put in touch with math, music, kite-flying, poetry, and so on at relatively young ages.
But those are only a minuscule handful of the possible occupations and activities that human beings engage in. Take a look at the U.S. Census, which lists "over 21,000 industry and 31,000 occupation titles in alphabetical order." I have little doubt that no one on earth is meaningfully exposed to more than a minute percentage of all of the possible things one can do with one's life.

Nor do I think there's any conceivable system in which people could be meaningfully exposed to more than a handful of possible careers. In most cases, you simply don't know whether you'll like a career or activity until you've put in at least several months to get acclimated to it and to build up some basic competence. This is true in either direction: plenty of people go to law school but end up years later disliking the practice of law, while plenty of people (I'd bet) fail to explore some activity that they'd actually like simply because it appears uninteresting or daunting at first glance. In any event, it's just not possible to give someone six months' exposure to 1,000 different careers.

As a result, there's an inestimably large amount of human capital misallocation and misinvestment. Countless lawyers and doctors and bankers who complain about their work might have been perfectly happy as a lawn mower mechanic or as a beekeeper or as a chemist specializing in laundry detergent, but never had any inkling that they should have explored those careers.

Note: this post is only about the limitations of personal knowledge compared to the vast number of possible careers/activities. I'm not even touching on the issue of equal opportunity, i.e., the inner-city child who wasn't given enough intellectual stimulation in school to become qualified for many careers.

P.S. You might consider applying this same analysis to the question of whether a given individual is likely to end up marrying the (a) right person for him or her.

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