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Labor supply dynamics, unemployment and experience in the labor market

  • Etienne WASMER

    (UQAM, Montréal)

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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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2004044.

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Length: 22
Date of creation: 01 Dec 2004
Date of revision:
Handle: RePEc:ctl:louvre:2004044
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  1. Wasmer, Etienne, 2002. "Labor Supply Dynamics, Umemployment and Human Capital Investments," IZA Discussion Papers 463, Institute for the Study of Labor (IZA).
  2. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
  3. 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.
  4. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  5. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2000. "Vintage Human Capital, Demographic Trends and Endogenous Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  7. DE LA CROIX, David & DOCQUIER, Frédéric, 2003. "Diverging patterns of education premium and school attendance in France and the US: a Walrasian view," CORE Discussion Papers 2003058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Gilles Saint-Paul, 1993. "On the Political Economy of Labor Market Flexibility," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 151-196 National Bureau of Economic Research, Inc.
  9. Charlot, Olivier & Decreuse, Bruno, 2005. "Self-selection in education with matching frictions," Labour Economics, Elsevier, vol. 12(2), pages 251-267, April.
  10. 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.
  11. 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.
  12. Mincer, Jacob, 1997. "The Production of Human Capital and the Life Cycle of Earnings: Variations on a Theme," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S26-47, January.
  13. 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.
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