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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)

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    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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    File URL: https://www.economicdynamics.org/meetpapers/2013/paper_1208.pdf
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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
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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    Web page: http://www.EconomicDynamics.org/society.htmEmail:


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    1. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
    2. Steven J. Davis, 2008. "The Decline of Job Loss and Why It Matters," American Economic Review, American Economic Association, vol. 98(2), pages 263-67, May.
    3. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc.
    4. Henry Hyatt & Erika McEntarfer, 2012. "Job-to-Job Flows and the Business Cycle," Working Papers 12-04, Center for Economic Studies, U.S. Census Bureau.
    5. Hyatt, Henry R. & Spletzer, James R., 2013. "The Recent Decline in Employment Dynamics," IZA Discussion Papers 7231, Institute for the Study of Labor (IZA).
    6. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Business volatility, job destruction and unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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