A Life-Cycle Model of Trans-Atlantic Employment Experiences

62 Pages Posted: 9 May 2016

See all articles by Sagiri Kitao

Sagiri Kitao

City University of New York, CUNY Hunter College - Department of Economics

Lars Ljungqvist

Stockholm School of Economics - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Thomas J. Sargent

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2016

Abstract

To understand trans-Atlantic employment experiences since World War II, we build an overlapping generations model with two types of workers (high school and college graduates) whose different skill acquisition technologies affect their career decisions. Search frictions affect short-run employment outcomes. The model focuses on labor supply responses near beginnings and ends of lives and on whether unemployment and early retirements are financed by personal savings or public benefit programs. Higher minimum wages in Europe explain why youth unemployment has risen more there than in the U.S. Turbulence, in the form of higher risks of human capital depreciation after involuntary job destructions, causes long-term unemployment in Europe, mostly among older workers, but leaves U.S. unemployment unaffected. The losses of skill interact with workers' subsequent decisions to invest in human capital in ways that generate the age-dependent increases in autocovariances of income shocks observed by Moffitt and Gottschalk (1995).

Keywords: benefits, employment protection, Europe, minimum wage, U.S., Unemployment

JEL Classification: E24, J21, J64

Suggested Citation

Kitao, Sagiri and Ljungquist, Lars and Sargent, Thomas J., A Life-Cycle Model of Trans-Atlantic Employment Experiences (May 2016). CEPR Discussion Paper No. DP11260, Available at SSRN: https://ssrn.com/abstract=2777547

Sagiri Kitao (Contact Author)

City University of New York, CUNY Hunter College - Department of Economics ( email )

695 Park Avenue
New York, NY 10021
United States

Lars Ljungquist

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
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S-113 83 Stockholm
Sweden
+46 8 736 9209 (Phone)
+46 8 313 207 (Fax)

Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Thomas J. Sargent

New York University (NYU) - Department of Economics, Leonard N. Stern School of Business ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-3548 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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