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The Fading Dynamism of the US Labor Market: The Role of Demographics

  • Tomaz Cajner

    (Federal Reserve Board)

  • Isabel Cairo

    (Universitat Pompeu Fabra)

We study the increasing sluggishness of the U.S. labor market over the last three decades. Population aging and rising educational attainment are found to be the two most important driving forces behind the downward trends in labor market turnover rates. Empirically, these two demographic characteristics explain between 75 and 90 percent of the total decline in the aggregate unemployment inflow rate from 1976 to 2011. We examine theoretically why and how age and education affect the dynamism of worker flows. Since older and more-educated workers possess more job-specific human capital, the compositional shifts in the labor force induce an increase in the accumulated job-specific human capital. This in turn reduces incentives to destroy jobs and drives the secular trends in labor market fluidity. We show that a relatively stylized search and matching model with endogenous separations, featuring higher amounts of on-the-job training for more-educated workers and skill obsolescence for old unemployed workers, can go a long way in quantitatively accounting for the observed empirical patterns.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1208.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1208
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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