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Skill loss, ranking of job applicants, and the dynamics of unemployment

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Abstract

This paper investigates the consequences of skill loss as a result of unemployment in an efficiency wage model with turnover costs and on-the-job search. Firms are unable to differentiate wages and therefore prefer to hire employed searchers or unemployed workers who have not lost human capital. It is shown that if some fundamental factor in the economy changes, this will result in a lengthy adjustment process with substantial long run unemployment effects. Moreover, the model is capable of generating persistence but the amount depends on the duration of the shock itself

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  • Eriksson, Stefan, 2001. "Skill loss, ranking of job applicants, and the dynamics of unemployment," Working Paper Series 2001:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    • Handle: RePEc:hhs:ifauwp:2001_004
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    1. Jonas Agell & Per Lundborg, 2003. "Survey Evidence on Wage Rigidity and Unemployment: Sweden in the 1990s," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 15-30, March.
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    Cited by:

    1. Akiomi Kitagawa, 2013. "Long-run Consequences of Ranking Job Applicants by Unemployment Duration: Theoretical and Numerical Analyses," DSSR Discussion Papers 13, Graduate School of Economics and Management, Tohoku University.
    2. Forslund, Anders & Gottfries, Nils & Westermark, Andreas, 2005. "Real and Nominal Wage Adjustment in Open Economies," Working Paper Series 2005:18, Uppsala University, Department of Economics.
    3. Balestra Simone & Backes-Gellner Uschi, 2017. "When a Door Closes, a Window Opens? Long-Term Labor Market Effects of Involuntary Separations," German Economic Review, De Gruyter, vol. 18(1), pages 1-21, February.
    4. Khalifa, Sherif, 2015. "Learning-by-doing and unemployment dynamics," Economic Modelling, Elsevier, vol. 44(C), pages 180-187.
    5. Ochsen, Carsten, 2008. "How the distribution of unemployment by duration affects the unemployment rate," Thuenen-Series of Applied Economic Theory 88, University of Rostock, Institute of Economics.
    6. Sun, Ting & Bian, Xuezi & Liu, Jianxu & Wang, Rui & Sriboonchitta, Songsak, 2023. "The economic and social effects of skill mismatch in China: A DSGE model with skill and firm heterogeneity," Economic Modelling, Elsevier, vol. 125(C).
    7. Julen Esteban-Pretel, 2005. "The Effects of the Loss of Skills on Unemployment Fluctuations," CIRJE F-Series CIRJE-F-371, CIRJE, Faculty of Economics, University of Tokyo.
    8. Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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    More about this item

    Keywords

    Efficiency wage; Turnover; On-the-job search; Skill loss; Persistence; Short- and long term unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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