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Labor Supply Dynamics, Unemployment and Human Capital Investments

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Author Info
E Wasmer

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Abstract

In the last decades, the OECD labor markets faced important labor supply changes with the arrival of women and the cohorts of the baby-boom. Using a survey where workers declare their true employment experience, this paper argues that the supply trend can be equivalent to a trend of more inexperienced workers. The paper proposes to investigate the potentially important consequences of the dynamics of labor supply trends on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The mechanism highlighted here is that, in periods of sustained growth of the active population, the labor force is younger and less experienced, which may increase the wage return to 'experience' and lead to higher unemployment among low-experience workers. They do not accumulate enough on-the-job human capital, and this reduces in the long-run the supply of skilled workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria. When human capital investment decisions are introduced, low-experience groups try to improve their outcome on the labor market; new cohorts invest in education, women invest in on-the-job skills.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0411.

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Date of creation: Nov 1998
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Handle: RePEc:cep:cepdps:dp0411

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
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  3. Mincer, Jacob, 1997. "The Production of Human Capital and the Life Cycle of Earnings: Variations on a Theme," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S26-47, January. [Downloadable!] (restricted)
  4. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November. [Downloadable!] (restricted)
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  6. Jovanovic, Boyan & Nyarko, Yaw, 1994. "The Transfer of Human Capital," Working Papers 94-25, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  7. David Blanchflower & L Katz & G Loveman, 1993. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," CEP Discussion Papers dp0144, Centre for Economic Performance, LSE.
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  8. Nickell, S., 1991. "Wages, Unemployment and Population Change," Economics Series Working Papers 99122, University of Oxford, Department of Economics.
  9. McVicar, D. & Rice, P., 2000. "Participation in Further Education in England and Wales: An Analysis of Post-War Trends," Discussion Paper Series In Economics And Econometrics 0014, Economics Division, School of Social Sciences, University of Southampton.
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  10. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S65-97, October. [Downloadable!] (restricted)
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  13. Kevin Murphy & Mark Plant & Finis Welch, 1984. "Cohort Size and Earnings," UCLA Economics Working Papers 352, UCLA Department of Economics. [Downloadable!]
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  16. Kim B. Clark & Lawrence H. Summers, 1984. "Labor Force Participation: Timing and Persistence," NBER Working Papers 0977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352. [Downloadable!] (restricted)
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  21. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 457-75, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Etienne WASMER, 2004. "Labor supply dynamics, unemployment and experience in the labor market," Discussion Papers (REL - Recherches Economiques de Louvain) 2004044, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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