A life-cycle model of trans-Atlantic employment experiences

Sagiri Kitao, Lars Ljungqvist, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    To understand trans-Atlantic employment experiences since World War II, we build an overlapping generations model with two types of workers (high school and college graduates) whose different skill acquisition technologies affect their career decisions. Search frictions affect short-run employment outcomes. The model focuses on labor supply responses near beginnings and ends of lives and on whether unemployment and early retirements are financed by personal savings or public benefit programs. Higher minimum wages in Europe explain why youth unemployment has risen more there than in the U.S. Turbulence, in the form of higher risks of human capital depreciation after involuntary job destructions, causes long-term unemployment in Europe, mostly among older workers, but leaves U.S. unemployment unaffected. The losses of skill interact with workers' subsequent decisions to invest in human capital in ways that generate the age-dependent increases in autocovariances of income shocks observed by Moffitt and Gottschalk (1995).

    Original languageEnglish (US)
    JournalReview of Economic Dynamics
    DOIs
    StateAccepted/In press - Mar 29 2016

    Fingerprint

    Unemployment
    Life-cycle model
    Human capital
    Workers
    Short-run
    Labor supply
    Career decision
    Overlapping generations model
    Early retirement
    Depreciation
    Second World War
    Job destruction
    End of life
    Skill acquisition
    Supply response
    Income shocks
    Personal saving
    Youth unemployment
    Minimum wage
    High school

    Keywords

    • Autocovariance of income shocks
    • Benefits and job protection
    • Europe versus United States
    • Human capital and experience
    • Turbulence and earnings volatility
    • Unemployment and early retirement

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    A life-cycle model of trans-Atlantic employment experiences. / Kitao, Sagiri; Ljungqvist, Lars; Sargent, Thomas.

    In: Review of Economic Dynamics, 29.03.2016.

    Research output: Contribution to journalArticle

    Kitao, Sagiri ; Ljungqvist, Lars ; Sargent, Thomas. / A life-cycle model of trans-Atlantic employment experiences. In: Review of Economic Dynamics. 2016.
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