Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/21494
Authors: 
Wasmer, Etienne
Year of Publication: 
2002
Series/Report no.: 
IZA Discussion paper series 463
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 these supply trends imply more inexperienced workers. It then investigates the important consequences of this fact on the skill composition of the labor force, between-groups wage inequality and the level of unemployment. The main result is that a labor market with wage rigidities may not recover from such a temporary labor supply shock: with a younger and less experienced labor force, there is higher unemployment among low-experience workers, they do not accumulate enough on-the-job human capital, this reduces in the long-run the supply of skilled (experienced) workers and the demand for unskilled workers. This intertemporal multiplication of supply shocks generates multiple equilibria, and the rigid economy is stuck to the bad equilibrium even after the shock. In a competitive market, in contrast, wage inequality and notably, the wage return to experience becomes higher but there is no persistence of the supply shock. Higher education prevents this intertemporal multiplication of supply shocks.
Subjects: 
Wage inequality
education
experience
labor supply
JEL: 
J31
J21
E24
Document Type: 
Working Paper

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