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Labour Supply Dynamics, Unemployment and Human Capital Investments

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  • Etienne Wasmer

Abstract

In the last decades, the OECD labor markets faced important labor supply changes with the arrival of women and the cohorts of the baby-boom. Using a survey where workers declare their true employment experience, this paper argues that the supply trend can be equivalent to a trend of more inexperienced workers. The paper proposes to investigate the potentially important consequences of the dynamics of labor supply trends on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The mechanism highlighted here is that, in periods of sustained growth of the active population, the labor force is younger and less experienced, which may increase the wage return to 'experience' and lead to higher unemployment among low-experience workers. They do not accumulate enough on-the-job human capital, and this reduces in the long-run the supply of skilled workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria. When human capital investment decisions are introduced, low-experience groups try to improve their outcome on the labor market; new cohorts invest in education, women invest in on-the-job skills.

Suggested Citation

  • Etienne Wasmer, 2004. "Labour Supply Dynamics, Unemployment and Human Capital Investments," Sciences Po publications info:hdl:2441/8943, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/8943
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    Cited by:

    1. Wasmer, Etienne, 1998. "Labor Supply Dynamics, Unemployment and Human Capital Investments," Seminar Papers 651, Stockholm University, Institute for International Economic Studies.
    2. repec:hal:wpspec:info:hdl:2441/8943 is not listed on IDEAS
    3. Olivier Charlot, 2005. "Éducation, emploi et participation au marché du travail dans un modèle d'appariement," Recherches économiques de Louvain, De Boeck Université, vol. 71(1), pages 35-66.
    4. DIMIAN Gina Cristina & DIMIAN Mihai, 2011. "Main Threats To The Romanian Labour Market In The Current Context," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 69-76, December.
    5. Étienne Wasmer, 2004. "Labor supply dynamics, unemployment and experience in the labor market," Recherches économiques de Louvain, De Boeck Université, vol. 70(4), pages 461-482.
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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
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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