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Labor Supply Dynamics, Unemployment and Human Capital Investments

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Author Info
Wasmer, Etienne () (ECARES, ULB, Université de Metz, CEPR and IZA, Bonn)

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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 these supply trends imply more inexperienced workers. It then investigates the important consequences of this fact on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The main result is that a labor market with wage rigidities may not recover from such a temporary labor supply shock: with a younger and less experienced labor force, there is higher unemployment among low-experience workers, they do not accumulate enough on-the-job human capital, this reduces in the long-run the supply of skilled (experienced) workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria, and the rigid economy is stuck to the bad equilibrium even after the shock. In a competitive market, in contrast, wage inequality and notably, the wage return to experience becomes higher but there is no persistence of the supply shock. Higher education prevents this intertemporal multiplication of supply shocks.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 463.

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Length: 28 pages
Date of creation: Mar 2002
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Handle: RePEc:iza:izadps:dp463

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Related research
Keywords: Wage inequality; education; experience; labor supply;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  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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    Other versions:
  3. E Wasmer, 1998. "Labor Supply Dynamics, Unemployment and Human Capital Investments," CEP Discussion Papers dp0411, Centre for Economic Performance, LSE.
    Other versions:
  4. 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)
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  7. 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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  8. 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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  18. 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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  22. 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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Full references

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. Olivier Charlot, 2005. "Éducation, emploi et participation au marché du travail dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, vol. 71(1), pages 35-66. [Downloadable!]
  2. 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!]
    Other versions:
  3. Wasmer, Etienne, 2002. "Labor Supply Dynamics, Unemployment and Human Capital Investments," IZA Discussion Papers 463, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Olivier CHARLOT, 2005. "Education, emploi et participation au marchŽ du travail dans un modle dÕappariement," Discussion Papers (REL - Recherches Economiques de Louvain) 2005012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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