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A Life Cycle Model of Trans-Atlantic Employment Experiences

Author

Listed:
  • Thomas J. Sargent

    (New York University)

  • Lars Ljungqvist

    (Stockholm School of Economics)

  • Sagiri Kitao

    (University of Southern California)

Abstract

To understand trans-Atlantic employment experiences in the post-World War II era, we enrich the environment of Ljungqvist and Sargent (2008) in ways that allow skill losses occasioned by involuntary job separations (`turbulence') to have further effects on labor market outcomes. Our model features ex ante heterogeneity by having two types of workers who differ in their skill acquisition technologies. These technologies shape workers' long-run career decisions while search frictions in the labor market affect short-run employment outcomes. The model emphasizes labor supply responses near the beginning and end of life and whether early retirements are financed by an individual's savings or by public benefit programs. Increases in minimum wages in Europe explain why youth unemployment has risen more in Europe than in the U.S. Higher turbulence causes long-term unemployment to erupt in Europe, mostly among older workers, but leaves U.S. unemployment unaffected. Increased probabilities of skill losses at times of involuntary job separation interact with workers' subsequent decisions to invest in human capital in ways that generate age-dependent increases in autocovariances of income shocks like those observed by Moffitt and Gottschalk (1995).

Suggested Citation

  • Thomas J. Sargent & Lars Ljungqvist & Sagiri Kitao, 2009. "A Life Cycle Model of Trans-Atlantic Employment Experiences," 2009 Meeting Papers 914, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:914
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    References listed on IDEAS

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    Cited by:

    1. Selahattin Imrohoroglu & Sagiri Kitao, 2010. "Social Security, Benefit Claiming and Labor Force Participation: A Quantitative General Equilibrium Approach," Working Papers, Center for Retirement Research at Boston College wp2010-02, Center for Retirement Research, revised Mar 2010.
    2. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, Elsevier.

    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
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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