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What Should I Be When I Grow Up? Occupations and Employment over the Life Cycle and Business Cycle

Listed author(s):
  • Yaniv Yedid-Levi

    (UBC)

  • Nir Jaimovic

    (Duke)

  • Henry Siu

    (UBC)

  • Martin Gervais

    (University of Southampton)

Why is unemployment higher for young individuals than for the old? Why are business cycle fluctuations in employment more pronounced for the young than for the old? We address these questions in the context of a search-and-matching model of the labor market that features learning about occupational fit. Specifically, young workers enter the labor market not knowing the occupation they are most productive in, i.e., not knowing their ``true calling'' in life. In order to learn her true calling, a worker must sample occupational matches over her career. Matches are subject to both idiosyncratic and aggregate shocks, so that workers move in and out of unemployment. As such, our model generates heterogeneity in the labor force, where employed and unemployed workers can be categorized into types: lower type workers have little information about their true calling, while higher types are closer to discovering it. Hence, the model generates an endogenous mapping between `type' and age, allowing us to address our unemployment facts. Young workers are more likely to be unemployed since they are more likely to be in transition between occupations. This generates age differences in unemployment levels. Young workers are more volatile over the business cycle since firms' returns to posting vacancies for low types is more sensitive to fluctuations in aggregate productivity. This generates age differences in employment volatility.

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File URL: https://economicdynamics.org/meetpapers/2011/paper_893.pdf
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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 893.

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Date of creation: 2011
Handle: RePEc:red:sed011:893
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Marcus Hagedorn & Iourii Manovskii, 2008. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," American Economic Review, American Economic Association, vol. 98(4), pages 1692-1706, September.
  2. Theodore Papageorgiou, 2009. "Learning Your Comparative Advantages," 2009 Meeting Papers 1150, Society for Economic Dynamics.
  3. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-826, June.
  4. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Specificity Of Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 63-115, 02.
  5. Kim B. Clark & Lawrence H. Summers, 1981. "Demographic Differences in Cyclical Employment Variation," Journal of Human Resources, University of Wisconsin Press, vol. 16(1), pages 61-79.
  6. Francisco M. Gonzalez & Shouyong Shi, 2010. "An Equilibrium Theory of Learning, Search, and Wages," Econometrica, Econometric Society, vol. 78(2), pages 509-537, 03.
  7. Gary Solon & Ryan Michaels & Michael W. L. Elsby, 2009. "The Ins and Outs of Cyclical Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 84-110, January.
  8. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
  9. Neal, Derek, 1999. "The Complexity of Job Mobility among Young Men," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 237-261, April.
  10. Shigeru Fujita & Garey Ramey, 2009. "The Cyclicality Of Separation And Job Finding Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 415-430, 05.
  11. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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  13. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  14. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2005. "The Business Cycle and the Life Cycle," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 415-592 National Bureau of Economic Research, Inc.
  15. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
  16. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
  17. Gueorgui Kambourov & Iourii Manovskii, 2008. "Rising Occupational And Industry Mobility In The United States: 1968-97," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 41-79, 02.
  18. Theodore Papageorgiou, 2014. "Learning Your Comparative Advantages," Review of Economic Studies, Oxford University Press, vol. 81(3), pages 1263-1295.
  19. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
  20. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 853, European Central Bank.
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