Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability

60 Pages Posted: 31 May 2017

See all articles by Isabel Cairo

Isabel Cairo

Board of Governors of the Federal Reserve System

Tomaz Cajner

Board of Governors of the Federal Reserve System

Date Written: February, 2014

Abstract

Why do more educated workers experience lower unemployment rates and lower employment volatility? A closer look at the data reveals that these workers have similar job finding rates, but much lower and less volatile separation rates than their less educated peers. We argue that on-the-job training, being complementary to formal education, is the reason for this pattern. Using a search and matching model with endogenous separations, we show that investments in match-specific human capital reduce the outside option of workers, implying less incentives to separate. The model generates unemployment dynamics that are quantitatively consistent with the cross-sectional empirical patterns.

JEL Classification: E24, E32, J24, J64

Suggested Citation

Cairo, Isabel and Cajner, Tomaz, Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability (February, 2014). FEDS Working Paper No. 2014-9, Available at SSRN: https://ssrn.com/abstract=2976898

Isabel Cairo (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Tomaz Cajner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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