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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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Author Info
Ana Lamo () (European Central Bank, Kaiserstrasse 29, Postfach 16 03 19, 60066 Frankfurt am Main, Germany.)
Julián Messina () (CSEF, Department of Economics, University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy.)
Etienne Wasmer () (Université du Québec à Montréal Département des sciences économiques, Case postale 8888, Succursale Centre-Ville Montréal (Québec)H3C 3P8, CANADA.)

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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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Paper provided by European Central Bank in its series Working Paper Series with number 585.

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Length: 57 pages
Date of creation: Feb 2006
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Handle: RePEc:ecb:ecbwps:20060585

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Related research
Keywords: Matching; labor reallocation; specific skills; enlargement; vocational education.;

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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.:
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    Other versions:
  2. Pietro Garibaldi & Zuzana Brixiova, 1998. "Labor Market Institutions and Unemployment Dynamics in Transition Economies," IMF Staff Papers, Palgrave Macmillan Journals, vol. 45(2), pages 3. [Downloadable!] (restricted)
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    Other versions:
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  25. Zuzana Brixiova & Pietro Garibaldi, 1997. "Labor Market Institutions and Unemployment Dynamics in Transition Economies," IMF Working Papers 97/137, International Monetary Fund.
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Cited by:
(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. Katja Funke & Christiane Nickel, 2006. "Does fiscal policy matter for the trade account? A panel cointegration study," Working Paper Series 620, European Central Bank. [Downloadable!]
  2. Lorenzo Cappiello & Peter Hördahl & Arjan Kadareja & Simone Manganelli, 2006. "The impact of the euro on financial markets," Working Paper Series 598, European Central Bank. [Downloadable!]
  3. 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. [Downloadable!]
  4. Daniel A. Dias & Carlos Robalo Marques & João M. C. Santos Silva, 2006. "Measuring the importance of the uniform nonsynchronization hypothesis," Working Paper Series 606, European Central Bank. [Downloadable!]
  5. Ignazio Angeloni & Luc Aucremanne & Matteo Ciccarelli, 2006. "Price setting and inflation persistence: did EMU matter?," Working Paper Series 597, European Central Bank. [Downloadable!]
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  6. Ohlsson, Henry & Storrie, Donald, 2007. "Long term effects of public policy for displaced workers in Sweden – shipyard workers in the West and miners in the North," Working Paper Series 2007:19, Uppsala University, Department of Economics. [Downloadable!]
  7. Domenico Giannone & Lucrezia Reichlin, 2006. "Trends and cycles in the euro area: how much heterogeneity and should we worry about it?," Working Paper Series 595, European Central Bank. [Downloadable!]
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  8. Bert Minne & Marc van der Steeg & Dinand Webbink, 2008. "Skill gaps in the EU: role for education and training policies," CPB Documents 162, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  9. António Afonso & Vítor Gaspar, 2006. "Excess burden and the cost of inefficiency in public services provision," Working Paper Series 601, European Central Bank. [Downloadable!]
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  10. Paolo Vitale, 2006. "A market microstructure analysis of foreign exchange intervention," Working Paper Series 629, European Central Bank. [Downloadable!]
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