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Labor supply dynamics, unemployment and experience in the labor market

  • Étienne Wasmer

In the last decades, OECD labor markets faced important labor supply changes with the arrival of women and the cohorts of the baby-boom. Using a survey where workers declare their true employment experience, this paper argues that these supply trends imply more inexperienced workers. It then investigates the consequences of this fact on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The main result is that a labor market with wage rigidities may not recover from such a temporary labor supply shock : with a younger and less experienced labor force, there is higher unemployment among low-experience workers, they do not accumulate enough on-the-job human capital, this reduces in the long-run the supply of skilled (experienced) workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria, and the rigid economy is stuck to the bad equilibrium even after the shock. In a competitive labor market, in contrast, wage inequality and notably, the wage return to expérience becomes higher but there is no persistence of the supply shock.

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Article provided by De Boeck Université in its journal Recherches économiques de Louvain.

Volume (Year): 70 (2004)
Issue (Month): 4 ()
Pages: 461-482

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Handle: RePEc:cai:reldbu:rel_704_0461
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  1. Saint-Paul, G., 1993. "On the Political Economy of Labor Market Flexibility," DELTA Working Papers 93-02, DELTA (Ecole normale supérieure).
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  9. de la Croix, David & Docquier, Frédéric, 2003. "Diverging Patterns of Education Premium and School Attendance in France and the US: A Walrasian View," IZA Discussion Papers 846, Institute for the Study of Labor (IZA).
  10. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November.
  11. Wasmer, Etienne, 2001. "Measuring human capital in the labor market: The supply of experience in 8 OECD countries," European Economic Review, Elsevier, vol. 45(4-6), pages 861-874, May.
  12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  13. Peter Gottschalk, 1997. "Inequality, Income Growth, and Mobility: The Basic Facts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 21-40, Spring.
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