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Skill Loss, Ranking of Job Applicants and the Dynamics of Unemployment

  • Stefan Eriksson

This paper investigates the consequences of skill loss as a result of unemployment in an efficiency wage model with turnover costs and on-the-job search. Firms are unable to differentiate wages and therefore prefer to hire employed searchers or unemployed workers who have not lost human capital. It is shown that if some fundamental factor in the economy changes, this will result in a lengthy adjustment process with substantial long-run unemployment effects. Moreover, the model is capable of generating persistence, but the amount depends on the duration of the shock itself. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 7 (2006)
Issue (Month): (08)
Pages: 265-296

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Handle: RePEc:bla:germec:v:7:y:2006:i::p:265-296
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  1. Eriksson, Stefan & Gottfries, Nils, 2000. "Ranking of job applicants, on-the-job search, and persistent unemployment," Working Paper Series 2000:8, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Gottfries, Nils & Westermark, Andreas, 1998. "Nominal wage contracts and the persistent effects of monetary policy," European Economic Review, Elsevier, vol. 42(2), pages 207-223, February.
  3. Jonas Agell & Per Lundborg, . "Survey evidence on wage rigidity and unemployment: Sweden in the 1990s," EPRU Working Paper Series 99-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  5. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
  6. Acemoglu, Daron, 1995. "Public Policy in a Model of Long-Term Unemployment," Economica, London School of Economics and Political Science, vol. 62(246), pages 161-78, May.
  7. Burda, Michael C & Wyplosz, Charles, 1993. "Gross Worker and Job Flows in Europe," CEPR Discussion Papers 868, C.E.P.R. Discussion Papers.
  8. Campbell, Carl M, III & Kamlani, Kunal S, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 759-89, August.
  9. Agell, Jonas & Bennmarker, Helge, 2002. "Wage policy and endogenous wage rigidity: a representative view from the inside," Working Paper Series 2002:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  10. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  11. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-55, June.
  12. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  13. Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  14. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  15. George A. Akerlof & Andrew K. Rose & Janet L. Yellen, 1988. "Job Switching and Job Satisfaction in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 495-594.
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