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

Author

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  • Tomaz Cajner

    (Federal Reserve Board)

  • Isabel Cairo

    (Universitat Pompeu Fabra)

Abstract

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.

Suggested Citation

  • Tomaz Cajner & Isabel Cairo, 2013. "The Fading Dynamism of the US Labor Market: The Role of Demographics," 2013 Meeting Papers 1208, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:1208
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    File URL: https://economicdynamics.org/meetpapers/2013/paper_1208.pdf
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    References listed on IDEAS

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    1. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2010. "Business Volatility, Job Destruction, and Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 259-287, April.
    2. 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.
    3. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    4. Steven J. Davis, 2008. "The Decline of Job Loss and Why It Matters," American Economic Review, American Economic Association, vol. 98(2), pages 263-267, May.
    5. Mukoyama, Toshihiko, 2014. "The cyclicality of job-to-job transitions and its implications for aggregate productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 1-17.
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    Cited by:

    1. Fujita, Shigeru, 2015. "Declining labor turnover and turbulence," Working Papers 15-29, Federal Reserve Bank of Philadelphia, revised 02 Feb 2018.

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