published in:Recherches Economiques de Louvan / Louvain Economic Review, 2004, 70 (4), 461-482
In the last decades, the OECD labor markets faced important labor supply changes with the
arrival of women and the cohorts of the baby-boom. Using a survey where workers declare
their true employment experience, this paper argues that these supply trends imply more
inexperienced workers. It then investigates the important consequences of this fact on the
skill composition of the labor force, between-groups wage inequality and the level of
unemployment. The main result is that a labor market with wage rigidities may not recover
from such a temporary labor supply shock: with a younger and less experienced labor force,
there is higher unemployment among low-experience workers, they do not accumulate
enough on-the-job human capital, this reduces in the long-run the supply of skilled
(experienced) workers and the demand for unskilled workers. This intertemporal
multiplication of supply shocks generates multiple equilibria, and the rigid economy is stuck to
the bad equilibrium even after the shock. In a competitive market, in contrast, wage inequality
and notably, the wage return to experience becomes higher but there is no persistence of the
supply shock. Higher education prevents this intertemporal multiplication of supply shocks.
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