Figure 3 - uploaded by Santiago Caicedo
Content may be subject to copyright.
Source publication
We develop a theory of career paths and earnings where agents organize in production hierarchies. Agents climb these hierarchies as they learn stochastically from others. Earnings grow as agents acquire knowledge and occupy positions with more subordinates. We contrast these and other implications with US census data for the period 1990 to 2010, ma...
Contexts in source publication
Context 1
... discuss these statistics and the earnings data in the next section. In Figure 3 we present the resulting distribution of wages implied by the model as well as a histogram of the U.S. earnings data in 1990 5 . The fit is, we believe, quite good. ...
Context 2
... rise in K also has implications on the mean experience-earnings profiles and the variance of earnings across experience levels. Figure 13 presents mean wages as a function of experience for 1990 and 2010, as well as the ones implied by our calibrations for these years. The dashed lines correspond to K = 0.59, should be compared to the data in 1990, and replicate Figure 9. ...
Context 3
... the model, an increase in K increases the slope and level of the mean experienceearnings profiles. Figure 13 shows that these changes match the observe changes between 1990 and 2010 well. According to our model experience became more valuable in the later period, since the acquired knowledge could be applied to a larger pool of more difficult but valuable problems. ...
Context 4
... the main text we use a sample of white males, heads of household, that are fully employed to control for underemployment of secondary earners and minorities. In Figure A3 and A4 we compare the results presented in the main text with results using an alternative sample of all full time workers. As we argue in the main text the Lorenz curves and experience profiles are very similar and so the fit of our calibrations remains quite good. ...
Context 5
... A6 to A10 plot the histogram and the fitted distribution for individuals with s = {10, 20, 30, 40} years of experience in 1990 (A6 and A7) and 2010 ( A9 and A10). In Figure A8 we also include the distribution for all experiences pulled ( Figure 3 in the main text presents the corresponding figure for 1990). ...
Citations
... These questions include the evolution of wage inequality (Garicano and Rossi-Hansberg (2004) and Garicano and Rossi-Hansberg (2006)), the existence and growth of firms (Fuchs, Garicano, and Rossi-Hansberg (2015) and Caliendo and Rossi-Hansberg (2012)), economic development (Garicano and Rossi-Hansberg (2012)) and offshoring (Antràs, Garicano, and Rossi-Hansberg (2006)). See Garicano and Van Zandt (2013) and Garicano and Rossi-Hansberg (2015) for surveys of this literature and Caicedo, Lucas, and Rossi-Hansberg (2019), Eeckhout and Kircher (2018), Geerolf (2017) and Kikuchi, Nishimura, and Stachurski (2018) for some recent developments. ...
We extend Garicano's (2000) model of optimal organizations by allowing its members to screen problems, i.e. to attempt the identification of problems before trying to solve them. As for solving problems, screening is costly to learn and time consuming but has the advantage of allowing for successfully screened problems to be directed to those in the organization who can solve them. We establish several properties of optimal organizations and use them to show: (a) When screening problems is as costly as solving them, optimal organizations are hierarchies as in Garicano (2000), but (b) when the cost of learning how to screen problems is sufficiently small, optimal organizations are such that workers screen all problems that they and the managers who solve the most extraordinary problems cannot solve, those problems that they screen are directed to those managers who can solve them and those problems that they neither solve nor screen are passed to the managers who * We wish to thank Paulo Bastos, Esteban Rossi-Hansberg and seminar participants at the 2021 RES annual conference (Belfast) and EWET 2021 (Akko) for helpful comments. Any remaining errors are, of course, ours.
... Deming (2017) finds that wages are increasing in a worker's skill as well as the skill of her co-worker. From the O-ring theory of Kremer (1993) and from the theory of knowledge organization by Rossi-Hansberg (2004, 2006) and Caicedo et al. (2019), it is clear that the power or output elasticity of the indivisible factor is not fixed and is changing due to interaction between the different knowledge hierarchies. Therefore, there exists a convex relationship between wages and social skills. ...
... Moore (1911) proves that the wage does not follow a normal distribution and the distribution is skewed and depends on ability. Caicedo et al. (2019) derives the wage distribution, considering again ability. This has been explained with the help of Figure 5. ...
Purpose
Artificial intelligence (AI) has become an input to the production of goods and services. Therefore, a general question is there that “How the labor hour/human resource will be replaced by the artificial intelligence?” To answer this question, the paper considers that both AI and the human resources (HR) are the inputs to the firm and explains the choice between the two with reference to the customer relationship management. The paper derives the individual firms and the industry demand functions of the AI and the HR when both are present in the production of the identical or closely related goods and services. Moreover, the paper also shows the strategic behavior of an individual firm with the industry in selecting the AI and the HR. It has been shown that the individual firm's choice in the industry depends on the choice of the industry leader. The paper explains the supermodular game between the firms in an industry.
Design/methodology/approach
Game theory, industrial organization and non-convexity theories have been used in this paper to identify the choice between the HR and the AI in the customer relationship management.
Findings
The paper explains analytically the preference and demand for AI in the industry. Individual firm's strategic behavior and decision on choosing AI and the industry equilibrium have been studied logically. Moreover, the paper gives some light on the question of employment in presence of AI. The paper proves that in the presence of AI, labor demand will not be reduced but both will be used.
Originality/value
This work proves for the first time using some logical derivation that AI will not crowd out labor from the market. Moreover, to run AI, labor should also be used. It has been proved that to complete a job with speed and quality, both AI and HR are to be used.
... The convergence of the marginal value i.e. MV = f (x 1 + 1, x 2 , ..., x n ) f (x 1 , ...x n ) due to one unit change of indivisible labor x 1 depends on the value of the power of the indivisible factor (i.e.x 1 ).From the O-Ring theory of Kremer (1993) and from the theory of knowledge organization by Garicano & Rossi-Hansberg Garicano and Rossi-Hansberg (2004); Garicano & Rossi-Hansberg, Garicano and Rossi-Hansberg (2006);and Caicedo, Lucas Jr., & Hansberg,Caicedo et al. (2019) it is clear that the power or output elasticity of the indivisible factor is not fixed and is changing due to interaction of the di↵erent knowledge hierarchies. Therefore, there exists a convex relationship between wages and social skills. ...
The paper establishes a theory of complementarity in the agent (input) set. It proves that when more than one heterogeneous agent is used in the production process of goods and services, then the set of agents will be acting complementary because each agent works individually and for the group as well. Therefore, each agent has two types of contributions; viz. individual contribution and the contribution to the group. The paper first establishes this idea. Using this idea the paper gives a measure to calculate the value of an agent in presence of indivisibility and complementarity in N-person games. The article also proves that the standard Shapley value is not appropriate. Because it does not consider indivisibility and complementarity. In the end, the article proposes a new formula for the value of a player/agent in a coalition of N-person games considering a production economy by generalizing the equation of Shapley value.
... Deming (2017) finds that wages are increasing in a worker's skill as well as the skill of her co-worker. From the O-ring theory of Kremer (1993) and from the theory of knowledge organization by Rossi-Hansberg (2004, 2006) and Caicedo et al. (2019), it is clear that the power or output elasticity of the indivisible factor is not fixed and is changing due to interaction between the different knowledge hierarchies. Therefore, there exists a convex relationship between wages and social skills. ...
... Moore (1911) proves that the wage does not follow a normal distribution and the distribution is skewed and depends on ability. Caicedo et al. (2019) derives the wage distribution, considering again ability. This has been explained with the help of Figure 5. ...
Artificial Intelligence has become an input to the production of goods and services. Therefore, a general question is there that "How the labor hour/human resource will be replaced by the artificial intelligence?". To answer this question the paper considers that both artificial intelligence and the human resources are the inputs to the firm and explains the choice between the two with reference to the Customer Relationship Management. The paper derives the individual firm's and the industry demand functions of the artificial intelligence and the human resources when both are present in the production of the identical or closely related goods and services. Moreover, the paper also shows the strategic behavior of an individual firm with the industry in selecting the artificial Intelligence and the human Resources. It has been shown that the individual firm's choice in the industry depends on the choice of the industry leader. The paper explains the super modular game between the firms in an industry.
Keywords: Human Resource, Artificial Intelligence, Employment, Strategy, Industry Equilibrium, Demand
JEL Classification: C, D, J
... ..x n ) due to one unit change of indivisible labour x 1 depends on the value of the power of the indivisible factor (i.e., x 1 ). From the O-ring theory of Michael Kremer (1993) and from the theory of knowledge organization by Rossi-Hansberg (2004, 2006) and Caicedo et al. (2019), it is clear that the power or output elasticity of the indivisible factor is not fixed, and it is changing due to interaction of the different knowledge hierarchies. Therefore, formal construction of a stochastic production function is necessary with output elasticity of the indivisible factors are more than one. ...
... Henry Ludwell Moore (1911) proves that the wage does not follow a normal distribution, and the distribution is positively skewed and depends on ability. Caicedo et al. (2019) derive the wage distribution considering ability again. They explain that an agent is identified by his/her type, and at any date there is a distribution of types. ...
... The convergence of the marginal value, that is, MV = f (x 1 + 1, ..., x n ) − f (x 1 , ..., x n ) due to one unit change of indivisible labour depends on the value of the power of the indivisible factor (say x 1 ). From the O-ring theory Kremer (1993) and from the theory of knowledge organization (Caicedo et al., 2019;Garicano & Rossi-Hansberg, 2004,it is clear that the power or output elasticity of the indivisible factor is not fixed and is changing due to interaction of the different knowledge hierarchies. Therefore, formal construction of a stochastic production function is necessary. ...
The paper puts forth a notion and derives a special type of production function where labour is an indivisible factor and is in the integer space. Thus, Newtonian calculus is not an appropriate method of deriving the marginal value because limit point does not exist. This shows that indivisibility determines the output elasticity. In the first part, the paper propounds a notion regarding how indivisibility determines curvature of the production function. In the second part, the paper incorporates the findings within a production function and derives a new type accordingly. Moreover, it formally derives the standard wage equation considering all the entitlements of labour, namely (a) normal wages, (b) interest and (c) rent of ability. So far, no such mathematical proof is there to support this wage composition. This paper, for the first time, derives this wage equation considering indivisibility of labour.
JEL Classifications: J23, J24, J31, D24, C61, E24, L8
... In endogenous growth theory, by contrast, differences in growth can result from a variety of factors influenced by the actions of economic agents." 9 Many other forms of endogenous growth exist; for example, Dvorkin and Monge-Nara (2019) use human capital with the choice of jobs to create endogenous growth; Buera and Lucas (2018) emphasize ideas; Caicedo et al. (2019) use learning on the job; and Saha and Mishra (2020) present evidence on growth and income inequality. a lower marginal cost. ...
This paper presents a model in which human capital is deepened, education time increases, and labor shifts away from agriculture. These notable trends in industrial development accompany incremental steps upward in the level of education productivity. As education grows, human capital becomes relatively abundant and industries react by deepening their investment in human capital. Industries that use human capital relatively more intensively experience relatively lower prices and higher output. New industries are assumed to emerge in step with education productivity. Each new industry is assumed to have a relatively higher human capital factor share. As human capital deepening occurs, labor shifts toward the new industry and away from traditional industry. I delineate these features by extending a well-known model of endogenous economic growth through human capital investment. The extension disaggregates output into separate industries with different shares of the human capital factor. This enables trademark features of industrial development. The model explains rising education levels, growth, and labor reallocation using a minimally complex approach that jointly explains stylized facts through human capital deepening within each industry.
... Our analysis has related implications for the broader debate on the income distribution between capital and labor, and the concern regarding rising inequality (e.g., Piketty (2014), Caicedo et al. (2016), Gabaix et al. (2016), Stokey (2016)), which on the finance side has generally focused on the very top of the income distribution (e.g., Gabaix and Landier (2008), Kaplan and Rauh (2010), Frydman and Saks (2010), Frydman and Papanikolaou (2015)). Given the data limitations, very little was previously known about the total compensation to the intermediate levels of the income distribution represented by high-skilled laborers. ...
... In terms of overall structure, the model here is most closely related to Caicedo et al. (2019). In both setups, human capital-skill-is held by individual people; improvements over time in individual skill depend on imitation; the economy comprises a continuum of individual agents with heterogeneous skill levels; different tasks are assigned to different workers as a function of their skill level; and aggregate output depends on how individuals are assigned to tasks. ...
A model is developed in which two complementary forms of investment contribute to growth—technology and skill acquisition, and growth takes two forms—TFP and variety growth. The rate of TFP growth depends more heavily on the parameters governing skill accumulation, while variety growth depends, roughly, on the difference between the parameters governing technology and skill accumulation. Conditions for the existence of a BGP are established, and the effects of various parameters are characterized. In an example, subsidies to skill acquisition (technology acquisition) are powerful tools for stimulating TFP growth (variety growth). Investment incentives off the BGP are also explored.
... While the model in Waldman (1984) shares the feature of a rank-order wage scheme, it emphasizes potential inefficiencies from promotion dynamics under asymmetric information. The organizational structure of firms is the focus of the model in Caicedo et al. (2018), who study secular trends in the wage structure. They explicitly incorporate hierarchies into the production process and a relative shift of the worker-skill to the production-task ("problem") distribution can then explain rising wage inequality of the magnitude observed in the data. ...
... These data provide evidence that strongly suggests that our results on the importance of hierarchies generalize. We think that the reason for this is that hierarchies arise naturally in the organization of work (Garicano and Rossi-Hansberg, 2006;Caicedo et al., 2018) and compensation schemes based on job leveling are commonly used in the labor markets of industrialized countries. 16 The BLS provides detailed information that describes the job-leveling procedures in the data. ...
... NOTES 1. For some recent applications see Caicedo et al. (2018) and Akcigit et al. (2018). ...
In this note I propose two alternative frameworks to study idea diffusion models with cohort structures. Both frameworks fix the Lucas (2009) aggregation mistake while keeping the analytical tractability of the model and its insights. The frameworks differ in their assumptions on the meeting process. I study first a continuous arrival process where agents meet at each point in time, and then a more commonly used Poisson process where meeting opportunities arrive stochastically at some given Poisson rate. I generalize the growth formula in Lucas (2009) and show that both models yield the same growth rate on a balanced growth path. Moreover, I show that the continuous arrival process can be viewed as the limit of Poisson processes where the meeting rate increases but the quality of meetings decreases.
