4 Ways Persistently High Unemployment Could Ossify – the Human Capital Channel

Brad Plumer has a post today on rough projections that we will not reach full employment until 2022.

Here are four ways that failing to address the unemployment problem today could lead to long-lasting (and potentially permanent) reductions in human capital, employment, and social welfare:

  1. Unemployed workers lose opportunity to maintain and update skills
  2. If for incentive or human capital reasons, employers may prefer workers with long horizons, then it will quite hard for middle aged workers to find new jobs
  3. In high unemployment environment, it may be hard for workers to signal their quality by holding jobs and being promoted. Resulting inefficiencies in sorting workers may reduce the overall demand for labor.
  4. Lack of good times may reduce labor force participation today, which tends to lower future labor market participation.

Note: these are from slide 17 of the presentation on hysteresis that I posted yesterday.

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About ozidar

Graduate student at UC Berkeley, studying public finance & labor economics. https://sites.google.com/site/omzidar/
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