FRB: The Demand for Youth: Implications for the Hours Volatility Puzzle

International Finance Discussion Papers

The Demand for Youth: Implications for the Hours Volatility Puzzle
Nir Jaimovich, Seth Pruitt, and Henry E. Siu
2009-964 (January 2009)

Abstract: The employment and hours worked of young individuals fluctuate much more over the business cycle than those of prime-aged individuals. Understanding the mechanism underlying this observation is key to explaining the volatility of aggregate hours over the cycle. We argue that the joint behavior of age-specific hours and wages in the U.S. data point to differences in the cyclical characteristics of labor demand. To articulate this view, we consider a production technology displaying capital-experience complementarity. We estimate the key parameters governing the degree of complementarity and show that the model can account for the behavior of age-specific hours and wages while generating a series of aggregate hours that is nearly as volatile as output.

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Keywords
Business cycle, demographics, capital-experience complementarity, labor demand

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Last update: January 30, 2009