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Stochastic labour market shocks, labour market programmes, and human capital formation: a theoretical and empirical analysis

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Author Info
Michael Lechner ()
Rosalia Vazquez-Alvarez ()

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Abstract

This paper develops a life-cycle model of labour supply that captures endogenous human capital formation allowing for individual’s heterogeneous responses to stochastic labour market shocks. The shocks determines conditions in the labour market and sort individuals into three labour market regimes; employment, unemployment with and unemployment without participation in labour market programmes. The structural model entails time independent stochastic shocks that have transitory effects on monetary returns while the effect on human capital formation may be permanent. The permanent effect may justify the existence of active labour market programmes if these programmes imply non-depreciating human capital and human capital depreciation is detected for the non-participant unemployed. Using several years of the Swiss Labour Force Survey (SAKE, 1991 – 2004) the empirical section compares the dynamic formation of human capital between labour market regimes. The results are consistent with the assumptions of the structural model and suggest human capital depreciation for unemployment without programme participation. They further show that labour programmes may act as a buffer to reduce human capital loss while unemployed.

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File URL: http://www.vwa.unisg.ch/RePEc/usg/dp2007/DP-27-Le.pdf
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Publisher Info
Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2007 with number 2007-27.

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Length: 66 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:usg:dp2007:2007-27

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Related research
Keywords: Human capital formation; life-cycle labour supply models; active labour market policies; search activities; productivity shocks; unemployment;

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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This page was last updated on 2009-11-19.

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