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Loss of Skill During Unemployment and the Persistence of Employment Shocks

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  • Christopher A. Pissarides

Abstract

This paper shows that when unemployed workers lose some of their skills, the effects of a temporary shock to employment can persist for a long time. The key mechanism is a thin market externality that reduces the supply of jobs when the duration of unemployment increases. The paper develops an overlapping-generations model of search equilibrium and shows that different patterns of persistence and multiple equilibria are possible even with constant returns production and matching technologies.

Suggested Citation

  • Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1371-1391.
    • Handle: RePEc:oup:qjecon:v:107:y:1992:i:4:p:1371-1391.
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    File URL: http://hdl.handle.net/10.2307/2118392
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