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

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  • Tomaz Cajner

    (Universitat Pompeu Fabra)

  • Isabel Cairo

    (Universitat Pompeu Fabra)

Abstract

Why do more educated workers experience lower unemployment rates? A closer look at the data reveals that these workers have the same job finding rates, but much lower separation rates than their less educated colleagues. 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 the outside option of workers, implying less incentives to separate and thus longer job spells. The model generates unemployment dynamics that are consistent with the observed patterns for unemployment, separation and job finding rates across education groups.

Suggested Citation

  • Tomaz Cajner & Isabel Cairo, 2011. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," 2011 Meeting Papers 1145, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:1145
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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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