The Cyclical Behavior of Unemployment and Vacancies With Loss of Skills During Unemployment

Abstract

This paper studies the cyclical fluctuations in unemployment and vacancies in a search and matching model in which workers lose skills during periods of unemployment. Firms' profits fluctuate more because aggregate productivity affects the economy's average human capital. Moreover, wages for workers with lower levels of human capital are closer to the value of nonmarket time, leading to more rigid wages. Fluctuations in the vacancy--unemployment ratio are larger than those in the baseline search and matching model and similar to those we observe in the data.

Differences in skill loss during unemployment across industries and occupations

“…Ortego-Marti (2016b) and Tjaden and Wellschmied (2014) show that search frictions and human capital decay can account for most of the observed residual wage dispersion. Labor market fluctuations are also larger in models with human capital decay, as Lalé (2017) and Ortego-Marti (2016a) show. Ortego-Marti (2015) finds large TFP differences among OECD countries due to search frictions and loss of skills.…”

Skill loss during unemployment and the scarring effects of the COVID-19 pandemic

“…We employ a similar framework, but also add loss of skill during unemployment, which allows us to study the long-run effects of a pandemic and lockdowns on the skill composition of the unemployed and TFP. In addition, skill loss improves the performance of the Mortensen-Pissarides model in response to shocks (Ortego-Marti (2017a)).…”

Identification of employment increasing possibilities in the context of the EU socioeconomic environment evaluation: The case of Lithuania

“…al., 2014;Mueller, 2017;Tang, Bethencourt, 2017), analysis of the individual submarkets (e.g. low wages submarket) (Kwon 2014;Ortego-Marti, 2017). Job security issues (Eichhorn, 2014;Wulfgramm, 2014;Berglund, Furaker, 2016;Caroli, Godard, 2016) and aspects of labour costs and their impact on the labour market (Dobele et al, 2014;Lazutka et al 2015;Bayraktar-Saglam, Boke, 2017;Boadway, Song, Tremblay, 2017) are analysed along with discourse on unemployment insurance benefits.…”