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The Fading Dynamism of the US Labor Market: The Role of Demographics

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  • Tomaz Cajner

    (Federal Reserve Board)

  • Isabel Cairo

    (Universitat Pompeu Fabra)

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    Abstract

    We study the increasing sluggishness of the U.S. labor market over the last three decades. Population aging and rising educational attainment are found to be the two most important driving forces behind the downward trends in labor market turnover rates. Empirically, these two demographic characteristics explain between 75 and 90 percent of the total decline in the aggregate unemployment inflow rate from 1976 to 2011. We examine theoretically why and how age and education affect the dynamism of worker flows. Since older and more-educated workers possess more job-specific human capital, the compositional shifts in the labor force induce an increase in the accumulated job-specific human capital. This in turn reduces incentives to destroy jobs and drives the secular trends in labor market fluidity. We show that a relatively stylized search and matching model with endogenous separations, featuring higher amounts of on-the-job training for more-educated workers and skill obsolescence for old unemployed workers, can go a long way in quantitatively accounting for the observed empirical patterns.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1208.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:1208

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    1. Henry R. Hyatt & James Spletzer, 2013. "The Recent Decline in Employment Dynamics," Working Papers 13-03, Center for Economic Studies, U.S. Census Bureau.
    2. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2008. "Business Volatility, Job Destruction, and Unemployment," NBER Working Papers 14300, National Bureau of Economic Research, Inc.
    3. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
    4. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
    5. Steven J. Davis, 2008. "The Decline of Job Loss and Why It Matters," American Economic Review, American Economic Association, vol. 98(2), pages 263-67, May.
    6. Henry Hyatt & Erika McEntarfer, 2012. "Job-to-Job Flows and the Business Cycle," Working Papers 12-04, Center for Economic Studies, U.S. Census Bureau.
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