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The Supply of Skills in the Labor Force and Aggregate Output Volatility

Author

Listed:
  • Steven Lugauer

    (Department of Economics, University of Notre Dame)

Abstract

The cyclical volatility of U.S. gross domestic product suddenly declined during the early 1980s and remained low for over 20 years. I develop a labor search model with worker heterogeneity and match-specific costs to show how an increase in the supply of high-skill workers can contribute to a decrease in aggregate output volatility. In the model, firms react to changes in the distribution of skills by creating jobs designed specifically for high-skill workers. The new worker-firm matches are more profitable and less likely to break apart due to productivity shocks. Aggregate output volatility falls because the labor market stabilizes on the extensive margin. In a simple calibration exercise, the labor market based mechanism generates a substantial portion of the observed changes in output volatility.

Suggested Citation

  • Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers 005, University of Notre Dame, Department of Economics, revised Jun 2012.
    • Handle: RePEc:nod:wpaper:005
    as

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    File URL: http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/005_skills.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Supply of Skills in the Labor Force and Aggregate Output Volatility
      by Christian Zimmermann in NEP-DGE blog on 2012-11-20 10:13:04

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    More about this item

    Keywords

    Business Cycles; Skill Supply; Demographics;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    NEP fields

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