Keywords: participation in the labor market, turbulence, Labor market frictions, human capital
JEL codes: E24, E37, J21, J64
Abstract
Participation of middle aged men with upper secondary education or less has decreased over the last two decades in the US. This comes together with wage stagnation for this demographic group. In this paper we use a general equilibrium model of the labor market with frictions, participation decisions and endogenous accumulation of skills through a learning by doing technology in order to understand these facts. We quantitatively assess the implications of an increase in the probability of skills loss during non-employment spells (turbulence, after Ljungqvist and Sargent, 1998) and show that non-participation increases and wages of more experienced workers fall because with increased turbulence their outside option worsens.
