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Title: Youth Cohort Size and Unemployment Rate

Citation Type: Working Paper

Publication Year: 2011

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Abstract: Although an increase in youth cohort size is often found to exert an upward pressure on the aggregate unemployment rate, Shimer [2001] provides some empirical evidences and a theoretical model to the contrary. We find that the estimated elasticity of unemployment rate is quite sensitive in a fixed effect model, with the inclusion of year dummies, when there is a strong temporal correlation between the youth cohort size and the unemployment rate. Both the sign and magnitude of the estimates vary significantly when using data from different time periods. We propose an alternative way to control for the fixed effects and obtain consistent estimates across the time periods in the United States. Our results support the conventional wisdom of positive correlation between youth cohort size and aggregate unemployment rate. This positive effect of the youth cohort size is strongest for the youngest workers and gradually diminishes for older workers, which implies that the young and the prime age workers are not perfect substitutes to the employers.

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Authors: Zhu, Siyi; Gan, Li

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Institution: Department of Economics, Texas A&M University

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Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Other

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