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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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    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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