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The Demand for Youth: Implications for the Hours Volatility Puzzle

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  • Nir Jaimovich
  • Seth Pruitt
  • Henry E. Siu

Abstract

The employment and hours worked of young individuals fluctuate much more over the business cycle than those of prime-aged individuals. Understanding the mechanism underlying this observation is key to explaining the volatility of aggregate hours over the cycle. We argue that the joint behavior of age-specific hours and wages in the U.S. data point to differences in the cyclical characteristics of labor demand. To articulate this view, we consider a production technology displaying capital-experience complementarity. We estimate the key parameters governing the degree of complementarity and show that the model can account for the behavior of age-specific hours and wages while generating a series of aggregate hours that is nearly as volatile as output.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14697.

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Date of creation: Jan 2009
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Publication status: published as The Demand for Youth: Explaining Age Differences in the Volatility of Hours, American Economic Review, December 2013, vol. 103, issue 7, 3022-3044 (with Henry Siu and Seth Pruitt).
Handle: RePEc:nbr:nberwo:14697

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  1. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2004. "The business cycle and the life cycle," Working Paper 0404, Federal Reserve Bank of Cleveland.
  2. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(02), pages 222-240, April.
  3. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  4. Rui Castro & Daniele Coen-Pirani, . "Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid 1980s?," GSIA Working Papers 2006-E27, Carnegie Mellon University, Tepper School of Business.
  5. H. W. Hoynes, . "Local Labor Markets and Welfare Spells: Do Demand Conditions Matter?," Institute for Research on Poverty Discussion Papers 1104-96, University of Wisconsin Institute for Research on Poverty.
  6. Gary D. Hansen & Selo Imrohoroglu, 2007. "Business Cycle Fluctuations and the Life Cycle: How Important is On-The-Job Skill Accumulation?," NBER Working Papers 13603, National Bureau of Economic Research, Inc.
  7. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
  8. Robert G. King & Sergio T. Rebelo, 2000. "Resuscitating Real Business Cycles," NBER Working Papers 7534, National Bureau of Economic Research, Inc.
  9. Kim B. Clark & Lawrence H. Summers, 1980. "Demographic Differences in Cyclical Employment Variation," NBER Working Papers 0514, National Bureau of Economic Research, Inc.
  10. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  11. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June.
  12. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  13. Finn E. Kydland & Edward C. Prescott, 1993. "Cyclical movements of the labor input and its implicit real wage," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 12-23.
  14. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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Cited by:
  1. Yaniv Yedid-Levi & Nir Jaimovic & Henry Siu & Martin Gervais, 2011. "What Should I Be When I Grow Up? Occupations and Employment over the Life Cycle and Business Cycle," 2011 Meeting Papers 893, Society for Economic Dynamics.
  2. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
  3. Ariel Burstein & Javier Cravino & Jonathan Vogel, 2011. "Importing Skill-Biased Technology," NBER Working Papers 17460, National Bureau of Economic Research, Inc.
  4. Lugauer, Steven & Redmond, Michael, 2012. "The age distribution and business cycle volatility: International evidence," Economics Letters, Elsevier, vol. 117(3), pages 694-696.
  5. Lugauer, Steven, 2012. "Demographic Change And The Great Moderation In An Overlapping Generations Model With Matching Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 16(05), pages 706-731, November.
  6. Sebastian Dyrda & Greg Kaplan & José-Víctor Ríos-Rull, 2012. "Business Cycles and Household Formation: The Micro vs the Macro Labor Elasticity," NBER Working Papers 17880, National Bureau of Economic Research, Inc.
  7. Dennett, Julia & Modestino, Alicia Sasser, 2013. "Uncertain futures?: youth attachment to the labor market in the United States and New England," New England Public Policy Center Research Report 13-3, Federal Reserve Bank of Boston.
  8. Alexandre Janiak & Paulo Santos Monteiro, 2011. "Towards a quantitative theory of automatic stabilizers: the role of demographics," Documentos de Trabajo 284, Centro de Economía Aplicada, Universidad de Chile.

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