Leveraging on Human Capital: Labor Rigidities and Sorting over the Business Cycle" joint with Luca Mazzone (IMF) and Andrea Alati (LSE)
Abstract:
This paper introduc es a structural model of the labor market that features worker and firm het erogeneity, where workers accumulate human capital and can search on the jo b. Wages are determined through an optimal dynamic contract. Downward wage rigidity arises endogenously through limited commitment on the firm side. A ggregate fluctuations alter the sorting between workers and firms and disto rt incentives to accumulate human capital. We show that insurance incentive s and contractual rigidities, together with limits to the intensity of inve stment in human capital, generate long term costs of business cycle fluctua tions. Scarring effects arise in absence of demand externalities or informa tional frictions, as a direct result of physical constraints to investment and limited commitment by workers. Once inefficiently separated, workers th at look for employment in bad times direct their search towards less produc tive firms, a fact which has long lasting consequences for their working ca reer. Using administrative data on the universe of Italian labor contracts provided by the social security administration (INPS), we provide empirical evidence of these mechanisms.
DTSTAMP:20260908T223401Z DTSTART:20210325T170000Z DTEND:20210325T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR