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Human Capital and Economic Growth : Dynamic Implications of Insider-outsider Problem for Macroeconomics

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  • Shin-ichi Fukuda

    (PRI)

  • Robert F. Owen

Abstract

This paper considers a dynamic model with human capital accumulation, for which both firm-specific skills and general skills are sources of growth. We analyze how the existence of firm-specific skills changes the effects of productivity shocks on economic growth. It is well known that the insider-outsider problem can cause employment inertia in the macro economy because workers with firm-specific skills (insiders) face the hold up problem. However, most previous studies have been static in nature, so that they have paid little attention to dynamic interactions between firm-specific skills and general skills during the adjustment to the new steady state. This paper considers dynamic models that involve creation of human capital from both firm-specific skills and general skills. We show that the insider-outsider problem that is generated through the creation of firm-specific skills can cause a dramatic decline in the youth labor force during a transition path to the steady state. We also show that the problem may result in a temporary economic downturn even if the shock is positive. In Japan, since the mid-1990s, there has been a dramatic increase in the unemployment rate and a substantial decrease in the working population ratio together with increased irregular employment among young people. By analyzing firm-specific human capital as an engine of economic growth, this paper shows that these trends are consistent with our dynamic model. It also demonstrates that the productivity shocks might explain recent dramatic declines in youth employment and temporary declines in growth rates.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22597.

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Date of creation: Jan 2008
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Handle: RePEc:eab:macroe:22597

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org
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Keywords: firm-specific human capital; labor markets; insider-outsider problem;

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  1. Fukao, Kyoji & Otaki, Masayuki, 1993. "Accumulation of Human Capital and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 73-99, February.
  2. Masanori Hashimoto, 1990. "The Japanese Labor Market in a Comparative Perspective with the United States," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number jlm.
  3. Genda, Yuji & Rebick, Marcus E, 2000. "Japanese Labour in the 1990s: Stability and Stagnation," Oxford Review of Economic Policy, Oxford University Press, vol. 16(2), pages 85-102, Summer.
  4. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, 2nd ed," NBER Books, National Bureau of Economic Research, Inc, number beck75-1.
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