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Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability

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  • Isabel Cairó
  • Tomaz Cajner

Abstract

Why do more educated workers experience lower unemployment rates and lower employment volatility? Empirically, these workers have similar job finding rates but much lower and less volatile separation rates than their less educated peers. We argue that on†the†job training, being complementary to formal education, is the reason for this pattern. Using a search and matching model with endogenous separations, we show that investments in match†specific human capital reduce incentives to separate but leave the job finding rate essentially unaffected. The model generates unemployment dynamics quantitatively consistent with the data. Finally, we provide novel empirical evidence supporting the mechanism studied in the article.

Suggested Citation

  • Isabel Cairó & Tomaz Cajner, 2018. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," Economic Journal, Royal Economic Society, vol. 128(609), pages 652-682, March.
  • Handle: RePEc:wly:econjl:v:128:y:2018:i:609:p:652-682
    DOI: 10.1111/ecoj.12441
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    References listed on IDEAS

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    1. Competition & working conditions
      by chris in Stumbling and Mumbling on 2015-03-29 17:25:34

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    Cited by:

    1. Erin Wolcott, 2018. "Employment Inequality: Why Do the Low-Skilled Work Less Now?," 2018 Meeting Papers 487, Society for Economic Dynamics.
    2. Dario Caldara & Etienne Gagnon & Enrique Martínez-García & Christopher J. Neely, 2020. "Monetary Policy and Economic Performance since the Financial Crisis," Working Papers 2020-026, Federal Reserve Bank of St. Louis.
    3. Jordi Galí & Thijs van Rens, 2008. "The vanishing procyclicality of labor productivity," Economics Working Papers 1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
    4. Ronald Bachmann & Peggy Bechara, 2019. "The Importance of Two‐Sided Heterogeneity for the Cyclicality of Labour Market Dynamics," Manchester School, University of Manchester, vol. 87(6), pages 794-820, December.
    5. Laureys, Lien, 2014. "The cost of human capital depreciation during unemployment," LSE Research Online Documents on Economics 86337, London School of Economics and Political Science, LSE Library.
    6. J.I.Lopez & V. Olivella Moppett, 2014. "Financial Shocks and the Cyclical Behavior of Skilled and Unskilled Unemployment," Working papers 496, Banque de France.
    7. Lei Fang & Jun Nie, 2014. "Human Capital Dynamics and the U.S. Labor Market," FRB Atlanta Working Paper 2014-2, Federal Reserve Bank of Atlanta.
    8. Cynthia L. Doniger, 2019. "Do Greasy Wheels Curb Inequality?," Finance and Economics Discussion Series 2019-021, Board of Governors of the Federal Reserve System (U.S.), revised 27 Mar 2019.
    9. Robert Dixon & G. C. Lim & Jan C. van Ours, 2017. "Revisiting the Okun relationship," Applied Economics, Taylor & Francis Journals, vol. 49(28), pages 2749-2765, June.
    10. Marcin Bielecki, 2017. "Long shadows of financial shocks: an endogenous growth perspective," Working Papers 2017-22, Faculty of Economic Sciences, University of Warsaw.
    11. Bairagya, Indrajit, 2015. "Socio economic determinants of educated unemployment in India," Working Papers 343, Institute for Social and Economic Change, Bangalore.
    12. Fujita, Shigeru, 2018. "Declining labor turnover and turbulence," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 1-19.
    13. Ahmed SALAMA, 2017. "How Literacy Affects Unemployment Among Different Age Groups In Palestine," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 15, pages 363-371, December.
    14. Jan Eeckhout & Korie Amberger, 2017. "Labor Market Liquidity," 2017 Meeting Papers 839, Society for Economic Dynamics.
    15. J. Bardaji & B. Campagne & M.-B. Khder & Q. Lafféter & O. Simon & A.-S. Dufernez & C. Elezaar & P. Leblanc & E. Masson & H. Partouche, 2017. "The MESANGE macroeconometric model: re-estimation and innovations," Documents de Travail de l'Insee - INSEE Working Papers g2017-04, Institut National de la Statistique et des Etudes Economiques.
    16. Jung Hyun Choi & Richard K. Green, 2014. "Human Capital Spillovers and Local Unemployment," Working Paper 9319, USC Lusk Center for Real Estate.
    17. Tomaz Cajner & Isabel Cairo, 2013. "The Fading Dynamism of the US Labor Market: The Role of Demographics," 2013 Meeting Papers 1208, Society for Economic Dynamics.
    18. Joaquín Naval & José I. Silva & Javier Vázquez-Grenno, 2018. "Employment effects of on-the-job human capital acquisition," Working Papers 2018/05, Institut d'Economia de Barcelona (IEB).
    19. Nellie Zhao & Henry Hyatt & Isabel Cairo, 2016. "The U.S. Job Ladder and the Low-Wage Jobs of the New Millennium," 2016 Meeting Papers 1414, Society for Economic Dynamics.
    20. Roberto Pinheiro & Murat Tasci, 2019. "Firms, Skills, and Wage Inequality," Working Papers 201706R, Federal Reserve Bank of Cleveland.
    21. Marcin Bielecki, 2017. "Innovation and endogenous growth over business cycle with frictional labor markets," Working Papers 2017-26, Faculty of Economic Sciences, University of Warsaw.
    22. GalÌ, Jordi & van Rens, Thijs, 2020. "The Vanishing Procyclicality of Labour Productivity," CAGE Online Working Paper Series 477, Competitive Advantage in the Global Economy (CAGE).
    23. Fu Zhiming & Wu Liang & Zhuang Ziguan, 2019. "Labor supply, income distribution, and tax progressivity in a search model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(1), pages 1-18, January.
    24. GalÌ, Jordi & van Rens, Thijs, 2020. "The Vanishing Procyclicality of Labour Productivity," The Warwick Economics Research Paper Series (TWERPS) 1271, University of Warwick, Department of Economics.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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