The Supply of Skills in the Labor Force and Aggregate Output Volatility
Steven Lugauer
No 5, Working Papers from University of Notre Dame, Department of Economics
Abstract:
The cyclical volatility of U.S. gross domestic product suddenly declined during the early 1980s and remained low for over 20 years. I develop a labor search model with worker heterogeneity and match-specific costs to show how an increase in the supply of high-skill workers can contribute to a decrease in aggregate output volatility. In the model, firms react to changes in the distribution of skills by creating jobs designed specifically for high-skill workers. The new worker-firm matches are more profitable and less likely to break apart due to productivity shocks. Aggregate output volatility falls because the labor market stabilizes on the extensive margin. In a simple calibration exercise, the labor market based mechanism generates a substantial portion of the observed changes in output volatility.
Keywords: Business Cycles; Skill Supply; Demographics (search for similar items in EconPapers)
JEL-codes: E32 J24 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2012-06, Revised 2012-06
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (2)
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