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What Should I Be When I Grow Up? Occupations and Employment over the Life Cycle and Business Cycle

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Author Info

  • Yaniv Yedid-Levi

    (UBC)

  • Nir Jaimovic

    (Duke)

  • Henry Siu

    (UBC)

  • Martin Gervais

    (University of Southampton)

Abstract

Why is unemployment higher for young individuals than for the old? Why are business cycle fluctuations in employment more pronounced for the young than for the old? We address these questions in the context of a search-and-matching model of the labor market that features learning about occupational fit. Specifically, young workers enter the labor market not knowing the occupation they are most productive in, i.e., not knowing their ``true calling'' in life. In order to learn her true calling, a worker must sample occupational matches over her career. Matches are subject to both idiosyncratic and aggregate shocks, so that workers move in and out of unemployment. As such, our model generates heterogeneity in the labor force, where employed and unemployed workers can be categorized into types: lower type workers have little information about their true calling, while higher types are closer to discovering it. Hence, the model generates an endogenous mapping between `type' and age, allowing us to address our unemployment facts. Young workers are more likely to be unemployed since they are more likely to be in transition between occupations. This generates age differences in unemployment levels. Young workers are more volatile over the business cycle since firms' returns to posting vacancies for low types is more sensitive to fluctuations in aggregate productivity. This generates age differences in employment volatility.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 893.

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Date of creation: 2011
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Handle: RePEc:red:sed011:893

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  1. Gueorgui Kambourov & Iourii Manovskii, 2008. "Rising Occupational And Industry Mobility In The United States: 1968-97," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 41-79, 02.
  2. Neal, Derek, 1999. "The Complexity of Job Mobility among Young Men," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(2), pages 237-61, April.
  3. Robert Shimer, 2007. "Reassessing the Ins and Outs of Unemployment," NBER Working Papers 13421, National Bureau of Economic Research, Inc.
  4. Shouyong Shi & Francisco Gonzalez, 2009. "An Equilibrium Theory of Learning, Search and Wages," 2009 Meeting Papers, Society for Economic Dynamics 27, Society for Economic Dynamics.
  5. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1692-1706, September.
  6. Nir Jaimovich & Seth Pruitt & Henry E. Siu, 2009. "The demand for youth: implications for the hours volatility puzzle," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 964, Board of Governors of the Federal Reserve System (U.S.).
  7. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 119(3), pages 468 - 510.
  8. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," NBER Working Papers 10326, National Bureau of Economic Research, Inc.
  9. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages 972-90, October.
  10. Shouyong Shi, 2008. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers, University of Toronto, Department of Economics tecipa-343, University of Toronto, Department of Economics.
  11. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 1(1), pages 84-110, January.
  12. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  13. Iourii Manovskii & Gueorgui Kambourov, 2004. "Occupational Specificity of Human Capital," 2004 Meeting Papers, Society for Economic Dynamics 197, Society for Economic Dynamics.
  14. Theodore Papageorgiou, 2009. "Learning Your Comparative Advantages," 2009 Meeting Papers, Society for Economic Dynamics 1150, Society for Economic Dynamics.
  15. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 112-32, March.
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Cited by:
  1. Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2014. "Why is Old Workers' Labor Market More Volatile? Unemployment Fluctuations over the Life-Cycle," IZA Discussion Papers 8076, Institute for the Study of Labor (IZA).

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