Creator: Chari, V. V. and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 376 Abstract:
Theoretical advances in macroeconomics made in the last three decades have had a major influence on macroeconomic policy analysis. Moreover, over the last several decades, the United States and other countries have undertaken a variety of policy changes that are precisely what macroeconomic theory of the last 30 years suggests. The three key developments that have shaped macroeconomic policy analysis are the Lucas critique of policy evaluation due to Robert Lucas, the time inconsistency critique of discretionary policy due to Finn Kydland and Edward Prescott, and the development of quantitative dynamic stochastic general equilibrium models following Finn Kydland and Edward Prescott.
Subject (JEL): E52 - Monetary Policy, E62 - Fiscal Policy, E31 - Price Level; Inflation; Deflation, H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Chari, V. V. and Hopenhayn, Hugo Andres Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 326 Abstract:
'Structural unemployment' is said to occur in regions or 'sectors' of the economy as a consequence of technological changes. In this paper we present a model which provides an environment which gives rise to unemployment which could be labelled structural unemployment. There is exogenous technological change and vintage specific human capital. Unemployment arises as workers specialized in a particular technology within a vintage decide to search for a job within their vintage, so that their previously acquired special skills are used, instead of getting employed as unskilled workers in the newest vintage. As the rate of technological change increases, the incentives to reassign specialized workers to their same vintage, inccuring therefore in search costs, becomes less attractive, and in consequence the fraction of specialized workers doing search activities decreases. This provides some rationale for the negative correlation between rates of growth and unemployment observed in the data.
Keyword: Growth, Vintage human capital, Technology, Structural unemployment, Human capital, Labor market, Unemployment, and Skills Subject (JEL): E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity and J24 - Human Capital; Skills; Occupational Choice; Labor Productivity