The Effect of Labor Market Conditions at Entry on Workers' Long-Term Skills

47 Pages Posted: 13 Apr 2020

Abstract

This paper studies the impact of labor market conditions during the education-to-work transition on workers' long-term skill development. Using representative survey data on measures of work-relevant cognitive skills for adults from 19 countries, I document four main findings: i) cohorts of workers who faced higher unemployment rates at ages 18–25 have lower skills at ages 36–59; ii) unemployment rates faced at later ages (26–35) do not have such an effect; iii) the former findings hold even though, on average, people get more formal education as a response to higher unemployment in their late teens and early twenties; iv) skill inequality is affected: workers whose parents were less educated bear most of the negative effects. These findings can be rationalized by on-the-job learning during the early twenties being an important factor of skill-development, and such learning being negatively impacted by bad macroeconomic conditions. Using German panel data on skills, I show that young workers at large firms experience higher skill growth than those at small firms. This finding suggests firm heterogeneity in human capital provision to young workers as a potential mechanism since, in bad economic times, young workers disproportionately match with small firms.

Keywords: labor market entry, macroeconomic conditions, measures of skills, cognitive skills, on-the-job learning, firms

JEL Classification: J24, J23, E24

Suggested Citation

Arellano-Bover, Jaime, The Effect of Labor Market Conditions at Entry on Workers' Long-Term Skills. IZA Discussion Paper No. 13129. Available at SSRN: https://ssrn.com/abstract=3573299

Jaime Arellano-Bover (Contact Author)

Yale University ( email )

New Haven, CT 06520
United States

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