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The Allocation of Talent: Evidence from the Market of Economists

Boehm, Michael J. and Watzinger, Martin (2010): The Allocation of Talent: Evidence from the Market of Economists.

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Recent research in labor economics has highlighted the substantial and long-lasting adverse effect of recessions on employment prospects and earnings. In this paper, we study whether individuals react to these shocks by changing career paths and thereby affect the selection of talent into sectors. More concretely, we examine how the publication success and career choice of graduates from the leading US economics PhD programs varies with the state of the business cycle at application and at graduation. Our results strongly support the predictions of a Roy-style model of self-selection into sectors: We find that adverse macroeconomic conditions at application lead to a substantially more productive selection of individuals into academia and at graduation they lead to more PhDs deciding to stay in academia.

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