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
Creator: Guvenen, Fatih, Karahan, Fatih, Ozkan, Serdar, and Song, Jae Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 719 Abstract:
We study the evolution of individual labor earnings over the life cycle using a large panel data set of earnings histories drawn from U.S. administrative records. Using fully nonparametric methods, our analysis reaches two broad conclusions. First, earnings shocks display substantial deviations from lognormality–the standard assumption in the incomplete markets literature. In particular, earnings shocks display strong negative skewness and extremely high kurtosis–as high as 30 compared with 3 for a Gaussian distribution. The high kurtosis implies that in a given year, most individuals experience very small earnings shocks, and a small but non-negligible number experience very large shocks. Second, these statistical properties vary significantly both over the life cycle and with the earnings level of individuals. We also estimate impulse response functions of earnings shocks and find important asymmetries: positive shocks to high-income individuals are quite transitory, whereas negative shocks are very persistent; the opposite is true for low-income individuals. Finally, we use these rich sets of moments to estimate econometric processes with increasing generality to capture these salient features of earnings dynamics.
Keyword: Earnings dynamics, Nonparametric estimation, Life-cycle earnings risk, Kurtosis, Non-Guassian shocks, Normal mixture, and Skewness Subject (JEL): J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J31 - Wage Level and Structure; Wage Differentials, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Guvenen, Fatih, Kuruscu, Burhanettin, Tanaka, Satoshi, and Wiczer, David Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 729 Abstract:
What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? In this paper, we propose an empirical measure of skill mismatch for a worker-occupation match, which sheds light on these questions. This measure is based on the discrepancy between the portfolio of skills required by an occupation and the portfolio of abilities possessed by a worker for learning those skills. This measure arises naturally in a dynamic model of occupational choice and human capital accumulation with multidimensional skills and Bayesian learning about one’s ability to learn these skills. In this model, mismatch is central to the career outcomes of workers: it reduces the returns to occupational tenure, and it predicts occupational switching behavior. We construct our empirical analog by combining data from the National Longitudinal Survey of Youth 1979 (NLSY79), the Armed Services Vocational Aptitude Battery (ASVAB) on workers, and the O*NET on occupations. Our empirical results show that the effects of mismatch on wages are large and persistent: mismatch in occupations held early in life has a strong negative effect on wages in future occupations. Skill mismatch also significantly increases the probability of an occupational switch and predicts its direction in the skill space. These results provide fresh evidence on the importance of skill mismatch for the job search process.
Keyword: Mincer regression, ASVAB, Match quality, Skill mismatch, O*NET, and Occupational switching Subject (JEL): J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J31 - Wage Level and Structure; Wage Differentials, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity