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Are specific skills an obstacle to labor market adjustment? Theory and an application to the EU enlargement

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  • Lamo, Ana
  • Messina, Julián
  • Wasmer, Etienne

Abstract

We argue that the existence of large amounts of specific human capital makes costly and slows down the adjustment in the labor market after large reallocation shocks. To illustrate this point we build a theoretical framework in which young agents’ career is heavily determined by initial education, and analyze the transition to a new steady-state after a sectoral demand shift. An interesting case study is the EU enlargement, which led to modernization of many sectors in eastern countries and to a fast decline of traditional industries. Using labor force data from a large economy with rigid labor markets, Poland, and a small open economy with increased flexibility, Estonia, we document and find support for our claim. Quantitative exercises suggest that the overspecializaton of the labor force in Poland explain to a large extent the much higher and persistent unemployment compared to Estonia during the period of EU enlargement. JEL Classification: J30

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0585.

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Date of creation: Feb 2006
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Handle: RePEc:ecb:ecbwps:20060585

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Keywords: Enlargement; Labor Reallocation; Matching; Specific Skills; Vocational Education;

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References

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Citations

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Cited by:
  1. Thirunaukarasu Subramaniam & Ahmad Zubaidi Baharumshah, 2011. "Unemployment And Speed Of Adjustment In Asean-3 Economies: A Cointegration Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(03), pages 327-347.
  2. Lamo, Ana & Messina, Julián, 2010. "Formal education, mismatch and wages after transition: Assessing the impact of unobserved heterogeneity using matching estimators," Economics of Education Review, Elsevier, vol. 29(6), pages 1086-1099, December.
  3. Alexandre Janiak, 2008. "Mobility in Europe - Why it is low, the bottlenecks, and the policy solutions," European Economy - Economic Papers 340, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Jakob von Weizsäcker & Etienne Wasmer, 2007. "A better Globalisation Fund," Policy Briefs 36, Bruegel.
  5. Lamo, Ana & Messina, Julián & Wasmer, Etienne, 2010. "Are Specific Skills an Obstacle to Labor Market Adjustment?," IZA Discussion Papers 5250, Institute for the Study of Labor (IZA).
  6. Bert Minne & Marc van der Steeg & Dinand Webbink, 2008. "Skill gaps in the EU: role for education and training policies," CPB Document 162, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Etienne Wasmer, 2006. "General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs," American Economic Review, American Economic Association, vol. 96(3), pages 811-831, June.
  8. Alain Delacroix & Etienne Wasmer, 2007. "Job and Workers Flows in Europe and the US: Specific Skills or Employment Protection?," Sciences Po publications info:hdl:2441/9938, Sciences Po.
  9. Henry Ohlsson & Donald Storrie, 2012. "Long-term effects of public policy for displaced workers in Sweden: Shipyard workers in the west and miners in the north," International Journal of Manpower, Emerald Group Publishing, vol. 33(5), pages 514-538, April.

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