Saman Darougheh, Institute for International Economic Studies (Stockholm)

“Specialized Human Capital and Unemployment”. Job Market Seminar

Abstract

I argue that workers in occupations that are employable in more industries (“broader” occupations) are better insured against industry-specific shocks. Using geographical variation in occupation-level broadness, I show that individuals in broader occupations had higher job-finding rates during the Great Recession. Moreover, the unemployment rates of broad occupations increased less during that period, and the pool of unemployed consisted of more specialists than in other recessions. These facts would lead you to believe that recessions that primarily affect specialized occupations create more misallocation of labor and hence larger unemployment responses. I test this theory in a Lucas (1974) island setting where both intra-island labor markets and inter-island mobility are frictional. In the model, industries propagate productivity shocks to the occupations that they employ. Broad workers respond to productivity shocks to any of their industries by relocating to other industries. They thereby propagate the shock to the broad workers in the remaining industries: The original shock is weakened, but affects more individuals. Specialists are harder hit but respond by switching occupations – and thus offset partly the aggregate unemployment impact of a shock to specialist industries. Therefore, a shock to industries that employ specialist workers leads to a smaller unemployment response. I conclude that the composition of industries and occupations affected during Great Recession was not a key driver of the sharp rise in aggregate unemployment.

Contact person: Emiliano Santoro