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Labor Supply Dynamics, Umemployment and Human Capital Investments

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  • Wasmer, Etienne

    ()
    (Sciences Po, Paris)

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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Bibliographic Info

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

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Length: 29 pages
Date of creation: Mar 2002
Date of revision:
Publication status: published in:Recherches Economiques de Louvan / Louvain Economic Review, 2004, 70 (4), 461-482
Handle: RePEc:iza:izadps:dp463

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

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Cited by:
  1. Olivier Charlot, 2005. "Éducation, emploi et participation au marché du travail dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 71(1), pages 35-66.
  2. Wasmer, Etienne, 2002. "Labor Supply Dynamics, Umemployment and Human Capital Investments," IZA Discussion Papers 463, Institute for the Study of Labor (IZA).
  3. repec:spo:wpecon:info:hdl:2441/8943 is not listed on IDEAS
  4. Étienne Wasmer, 2004. "Labor supply dynamics, unemployment and experience in the labor market," Recherches économiques de Louvain, De Boeck Université, De Boeck Université, vol. 70(4), pages 461-482.

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