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The Effect of Labor Market Conditions at Entry on Workers' Long-Term Skills

Jaime Arellano-Bover ()

No 13129, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the impact of labor market conditions during the education-to-work transition on workers' long-term skill development. Using representative survey data on measures of work-relevant cognitive skills for adults from 19 countries, I document four main findings: i) cohorts of workers who faced higher unemployment rates at ages 18–25 have lower skills at ages 36–59; ii) unemployment rates faced at later ages (26–35) do not have such an effect; iii) the former findings hold even though, on average, people get more formal education as a response to higher unemployment in their late teens and early twenties; iv) skill inequality is affected: workers whose parents were less educated bear most of the negative effects. These findings can be rationalized by on-the-job learning during the early twenties being an important factor of skill-development, and such learning being negatively impacted by bad macroeconomic conditions. Using German panel data on skills, I show that young workers at large firms experience higher skill growth than those at small firms. This finding suggests firm heterogeneity in human capital provision to young workers as a potential mechanism since, in bad economic times, young workers disproportionately match with small firms.

Keywords: labor market entry; macroeconomic conditions; measures of skills; cognitive skills; on-the-job learning; firms (search for similar items in EconPapers)
JEL-codes: J24 J23 E24 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-04
New Economics Papers: this item is included in nep-eur, nep-lma and nep-mac
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