Specific Human Capital and Wait Unemployment

Herz, Benedikt (2017): Specific Human Capital and Wait Unemployment.

Abstract

A displaced worker might rationally prefer to wait through a long spell of unemployment instead of seeking employment at a lower wage in a job he is not trained for. I evaluate this trade-off using micro-data on displaced workers. To achieve identification, I exploit that the more a worker invested in occupation-specific human capital the more costly it is for him to switch occupations and the higher is therefore his incentive to wait. I find that between 9% and 18% of total unemployment in the United States can be attributed to wait unemployment.

• Item Type: MPRA Paper
• Language: English
• Keywords: wait unemployment, rest unemployment, specific human capital, worker mobility, mismatch, displaced workers
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J61 - Geographic Labor Mobility ; Immigrant Workers; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J62 - Job, Occupational, and Intergenerational Mobility

References

Abraham, Katharine G. and Henry S. Farber, “Job Duration, Seniority, and Earnings,” The American Economic Review, 1987, 77 (3), 278–297.

Alesina, Alberto, Reza Baqir, and William Easterly, “Public Goods and Ethnic Divisions,” The Quarterly Journal of Economics, 1999, 114 (4), 1243–1284.

Altonji, Joseph G. and Robert A. Shakotko, “Do Wages Rise with Job Seniority?,” The Review of Economic Studies, 1987, 54 (3), 437–459.

Alvarez, Fernando and Robert Shimer, “Unions and Unemployment,” Unpublished Manuscript, University of Chicago, 2008.

Alvarez, Fernando and Robert Shimer, “Search and Rest Unemployment,” Econometrica, 2011, 79 (1), 75–122.

Angrist, Joshua D. and Alan B. Krueger, “The Effect of Age at School Entry on Educational Attainment: An Application of Instrumental Variables with Moments from Two Samples,” Journal of the American Statistical Association, 1992, 87 (418), 328–336.

Angrist, Joshua D. and Alan B. Krueger, “Split-Sample Instrumental Variables Estimates of the Return to Schooling,” Journal of Business & Economic Statistics, 1995, 13 (2), 225–235.

Angrist, Joshua D. and Joern-Steffen Pischke, Mostly Harmless Econometrics: An Empiricist’s Companion, Princeton University Press, 2008.

Autor, David H., David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review, 2013, 103 (6), 2121–68.

Barnichon, Regis and Andrew Figura, “What drives movements in the unemployment rate? A decomposition of the Beveridge curve,” 2011.

Bleakley, Hoyt and Jeffrey Lin, “Thick-market effects and churning in the labor market: Evidence from US cities,” Journal of Urban Economics, 2012, 72 (2), 87–103.

Broner, Fernando, Paula Bustos, and Vasco M. Carvalho, “Sources of Comparative Advantage in Polluting Industries,”Working Paper 18337, National Bureau of Economic Research 2013.

Caliendo, Marco, Konstantinos Tatsiramos, and Arne Uhlendorff, “Benefit Duration, Unemployment Duration and Job Match Quality: A Regression-Discontinuity Approach,” Journal of Applied Econometrics, 2013, 28 (4), 604–627.

Cameron, A. Colin and Pravin K. Trivedi, Microeconometrics Using Stata, Revised Edition, Stata Press, 2010.

Card, David, “Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration,” Journal of Labor Economics, 2001, 19 (1), 22–64.

Card, David, Raj Chetty, and Andrea Weber, “Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market*,” The Quarterly Journal of Economics, 2007, 122 (4), 1511.

Carrington, William J., “Wage Losses for Displaced Workers: Is It Really the Firm That Matters?,” The Journal of Human Resources, 1993, 28 (3), 435–462.

Dorn, David, “Essays on Inequality, Spatial Interaction, and the Demand for Skills.” PhD dissertation, University of St. Gallen 2009.

Duan, Naihua, “Smearing estimate: a nonparametric retransformation method,” Journal of the American Statistical Association, 1983, 78 (383), 605–610.

Easterly, William and Ross Levine, “Africa’s Growth Tragedy: Policies and Ethnic Divisions,” The Quarterly Journal of Economics, 1997, 112 (4), 1203–1250.

Farber, Henry S., John Haltiwanger, and Katharine G. Abraham, “The Changing Face of Job Loss in the United States, 1981-1995,” Brookings Papers on Economic Activity. Microeconomics, 1997, 1997, 55–142.

Farber, Henry S., Robert Hall, and John Pencavel, “The Incidence and Costs of Job Loss: 1982-91,” Brookings Papers on Economic Activity. Microeconomics, 1993, 1993 (1), 73–132.

Gan, Li and Qinghua Zhang, “The thick market effect on local unemployment rate fluctuations,” Journal of Econometrics, 2006, 133 (1), 127–152.

Gibbons, Robert and Lawrence F. Katz, “Layoffs and Lemons,” Journal of Labor Economics, 1991, 9 (4), 351–380.

Gouge, Randall and Ian King, “A Competitive Theory of Employment Dynamics,” The Review of Economic Studies, January 1997, 64 (1), 1–122.

Gould, Eric D., Bruce A.Weinberg, and David B. Mustard, “Crime Rates and Local Labor Market Opportunities in the United States: 1979–1997,” Review of Economics and Statistics, February 2002, 84 (1), 45–61.

Hamilton, James D., “A Neoclassical Model of Unemployment and the Business Cycle,” Journal of Political Economy, 1988, 96 (3), 593–617.

Harris, John R. and Michael P.Todaro, “Migration, Unemployment and Development: ATwo-Sector Analysis,” The American Economic Review, 1970, 60 (1), 126–142.

Helsley, Robert W. and William C. Strange, “Matching and agglomeration economies in a system of cities,” Regional Science and Urban Economics, 1990, 20 (2), 189–212.

Herz, Benedikt and Thijs van Rens, “Accounting for Mismatch Unemployment,” June 2015.

Inoue, Atsushi and Gary Solon, “Two-Sample Instrumental Variables Estimators,” Review of Economics and Statistics, May 2010, 92 (3), 557–561.

Jovanovic, Boyan, “Work, Rest, and Search: Unemployment, Turnover, and the Cycle,” Journal of Labor Economics, 1987, 5 (2), 131–148.

Lucas Jr., Robert E. and Edward C. Prescott, “Equilibrium search and unemployment,” Journal of Economic Theory, February 1974, 7 (2), 188–209.

Kambourov, Gueorgui and Iourii Manovskii, “Occupational Specificity of Human Capital,” International Economic Review, 2009, 50 (1), 63–115.

King, Ian P., “A Natural Rate Model of Frictional and Long-Term Unemployment,” The Canadian Journal of Economics / Revue canadienne d’Economique, 1990, 23 (3), 523–545.

Kletzer, Lori G., “Job Displacement,” The Journal of Economic Perspectives, 1998, 12 (1), 115–136.

Kocherlakota, Narayana, “Economic Recovery and Balance Sheet Normalization,” June 2010.

Lilien, David M., “Sectoral Shifts and Cyclical Unemployment,” Journal of Political Economy, 1982, 90 (4), 777–793.

Marimon, Ramon and Fabrizio Zilibotti, “Unemployment vs. mismatch of talents: reconsidering unemployment benefits,” The Economic Journal, 1999, 109 (455), 266–291.

Mauro, Paolo, “Corruption and Growth,” The Quarterly Journal of Economics, January 1995, 110 (3), 681–712.

Mazzolari, Francesca and Giuseppe Ragusa, “Spillovers from High-Skill Consumption to Low-Skill Labor Markets,” Review of Economics and Statistics, 2011, 95 (1), 74–86.

Meyer, Peter Benjamin and Anastasiya M. Osborne, “Proposed Category System for 1960-2000 Census Occupations,” Working Paper 383, U.S. Bureau of Labor Statistics September 2005.

Miguel, Edward and Mary Kay Gugerty, “Ethnic diversity, social sanctions, and public goods in Kenya,” Journal of Public Economics, December 2005, 89 (11–12), 2325–2368.

Moretti, Enrico, “Chapter 14 - Local Labor Markets*,” in David Card and Orley Ashenfelter, eds., Handbook of Labor Economics, Vol. 4, Part B of Handbook of Labor Economics, Elsevier, 2011, pp. 1237 – 1313.

Mortensen, Dale T. and ´ Eva Nagyp´al, “More on unemployment and vacancy fluctuations,” Review of Economic Dynamics, July 2007, 10 (3), 327–347.

Murphy, Kevin M. and Topel, Robert H., “The Evolution of Unemployment in the United States: 1968—1985,” 1987.

Neal, Derek, “Industry-Specific Human Capital: Evidence from Displaced Workers,” Journal of Labor Economics, 1995, 13 (4), 653–677.

Neumann, George R and Robert H Topel, “Employment risk, diversification, and unemployment,” The Quarterly Journal of Economics, 1991, pp. 1341–1365.

Ozer-Balli, Hatice and Bent E. Sorensen, “Interaction Effects in Econometrics,” SSRN Scholarly Paper ID 1641004, Social Science Research Network, Rochester, NY July 2010.

Parent, Daniel, “Industry-Specific Capital and the Wage Profile: Evidence from the National Longitudinal Survey of Youth and the Panel Study of Income Dynamics,” Journal of Labor Economics, 2000, 18 (2), 306–323.

Rajan, Raghuram G. and Luigi Zingales, “Financial Dependence and Growth,” The American Economic Review, 1998, 88 (3), 559–586.

Rodriguez-Planas, Nuria, “Playing Hard to Get: Theory and Evidence on Layoffs, Recalls, and Unemployment,” Research in Labor Economics, 2013, 38, 211–258.

Ruggles, Steven, T. Alexander, Katie Genadek, Ronald Goeken, M. Schroeder, and Matthew Sobek, “Integrated Public Use Microdata Series (IPUMS): Version 5.0 [Machine-readable database],” University of Minnesota, Minneapolis, available at http://usa. ipums. org/usa, 2010.

Sahin, Aysegul, Joseph Song, Giorgio Topa, and Giovanni L.Violante, “Mismatch Unemployment,” American Economic Review, 2014, 104 (11), 3529–64.

Shimer, Robert, “Mismatch,” The American Economic Review, 2007, 97 (4), 1074–1101.

Simon, Curtis J., “Frictional unemployment and the role of industrial diversity,” The Quarterly Journal of Economics, 1988, pp. 715–728.

Staiger, Douglas and James H. Stock, “Instrumental Variables Regression with Weak Instruments,” Econometrica, May 1997, 65 (3), 557.

Summers, Lawrence H., Katharine G. Abraham, and Michael L. Wachter, “Why Is the Unemployment Rate So Very High near Full Employment?,” Brookings Papers on Economic Activity, 1986, 1986 (2), 339–396.

Tatsiramos, Konstantinos and Jan C. Van Ours, “Labor market effects of unemployment insurance design,” Journal of Economic Surveys, 2014, 28 (2), 284–311.

Tolbert, C. M. and M. Sizer, “U.S. Commuting Zones and Labor Market Areas: A 1990 Update,” September 1996.

Tolbert, Charles M. and Molly Sizer Killian, “Labor Market Areas for the United States.,” January 1987.

Topel, Robert, “Specific capital and unemployment: Measuring the costs and consequences of job loss,” Carnegie-Rochester Conference Series on Public Policy, 1990, 33, 181–214.

Topel, Robert, “Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority,” Journal of Political Economy, 1991, 99 (1), 145–176.

Topel, Robert H., “Local Labor Markets,” Journal of Political Economy, 1986, 94 (3), S111–S143. U. S. Department of Labor, Dictionary of Occupational Titles: Revised Fourth Edition 1991.

Van Ours, Jan C. and Milan Vodopivec, “Does reducing unemployment insurance generosity reduce job match quality?,” Journal of Public Economics, 2008, 92 (3), 684–695.

Wheeler, Christopher H, “Local market scale and the pattern of job changes among young men,” Regional Science and Urban Economics, 2008, 38 (2), 101–118.