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

Author

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  • Arellano-Bover, Jaime

    (Yale University)

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.

Suggested Citation

  • Arellano-Bover, Jaime, 2020. "The Effect of Labor Market Conditions at Entry on Workers' Long-Term Skills," IZA Discussion Papers 13129, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13129
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    Cited by:

    1. Kim, Sun Hyung, 2023. "The importance of social skills in recovery from graduating in a recession," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 387-411.
    2. Arellano-Bover, Jaime & Saltiel, Fernando, 2021. "Differences in On-the-Job Learning across Firms," IZA Discussion Papers 14473, Institute of Labor Economics (IZA).
    3. Samuel Bentolila & Florentino Felgueroso & Marcel Jansen & Juan F. Jimeno, 2022. "Lost in recessions: youth employment and earnings in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 11-49, May.
    4. Patrick Bennett & Jessica Botros, 2024. "Intergenerational Mobility, Economic Shocks, and the Role of Human Capital," Working Papers 10, University of Liverpool, Department of Economics.
    5. Mahdi Gholami & Samuel Muehlemann, 2024. "Pathways to Prosperity: The Roles of Cognitive and Non-Cognitive Skills in Employer Quality and Early Career Earnings," Economics of Education Working Paper Series 0212, University of Zurich, Department of Business Administration (IBW), revised Dec 2024.
    6. Battisti, Michele & Kinne, Lavinia & Fedorets, Alexandra, 2022. "Cognitive Skills among Adults: An Impeding Factor for Gender Convergence?," VfS Annual Conference 2022 (Basel): Big Data in Economics 264110, Verein für Socialpolitik / German Economic Association.
    7. Till von Wachter, 2020. "The Persistent Effects of Initial Labor Market Conditions for Young Adults and Their Sources," Journal of Economic Perspectives, American Economic Association, vol. 34(4), pages 168-194, Fall.
    8. Mask, Joshua, 2023. "Salary history bans and healing scars from past recessions," Labour Economics, Elsevier, vol. 84(C).
    9. Elena Ashtari Tafti & Mimosa Distefano & Tetyana Surovtseva, 2024. "Gender, careers and peers' gender mix," CEP Discussion Papers dp2008, Centre for Economic Performance, LSE.
    10. Lucas Finamor, 2022. "Labor market conditions and college graduation: evidence from Brazil," Papers 2201.11047, arXiv.org, revised Mar 2023.
    11. Sébastien Willis, 2022. "Workplace Segregation and the Labour Market Performance of Immigrants," CESifo Working Paper Series 9895, CESifo.
    12. Lorenzo Cappellari & Daniele Checchi & Marco Ovidi, 2022. "The effects of schooling on cognitive skills: evidence from education expansions," DISCE - Working Papers del Dipartimento di Economia e Finanza def122, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    13. Marta Martínez-Matute & Ernesto Villanueva, 2023. "Task specialization and cognitive skills: evidence from PIAAC and IALS," Review of Economics of the Household, Springer, vol. 21(1), pages 59-93, March.
    14. Maclean, Johanna Catherine & Webber, Douglas, 2022. "Government regulation and wages: Evidence from continuing coverage mandates," Labour Economics, Elsevier, vol. 78(C).
    15. Saltiel, Fernando & Tuttle, Cody, 2022. "Business Cycles and Police Hires," IZA Discussion Papers 15665, Institute of Labor Economics (IZA).
    16. Gholami, Mahdi & Muehlemann, Samuel, 2024. "Math Skills, Selection in Training Firms, and Post-Training Wages," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302349, Verein für Socialpolitik / German Economic Association.
    17. Eric A. Hanushek & Lavinia Kinne & Frauke Witthoeft & Ludger Woessmann, 2024. "Age and Cognitive Skills: Use It or Lose It," Papers 2410.00790, arXiv.org.
    18. Shisham Adhikari & Athanasios Geromichalos & Ioannis Kospentaris, 2023. "How much work experience do you need to get your first job? The macroeconomic implications of bias against labor market entrants," Working Papers 357, University of California, Davis, Department of Economics.
    19. Berniell, Inés & Gasparini, Leonardo & Marchionni, Mariana & Viollaz, Mariana, 2023. "Lucky women in unlucky cohorts," Journal of Development Economics, Elsevier, vol. 161(C).
    20. Jennifer Graves & Zoë Kuehn, 2022. "Higher education decisions and macroeconomic conditions at age eighteen," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 171-241, May.

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    More about this item

    Keywords

    on-the-job learning; labor market entry; macroeconomic conditions; measures of skills; cognitive skills; firms;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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