Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/283200 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 357
Publisher: 
University of California, Department of Economics, Davis, CA
Abstract: 
The first step in a worker's career is often particularly hard. Many firms seeking workers require experience in a related field, so a vicious circle is created, whereby an entry level job is required in order to get an entry level job. Consequently, entrant workers have lower job-finding rates and longer unemployment durations than the unemployed who have looked for a job in the past. To study the welfare implications of these observations, we consider a version of the DMP model where firms who match with entrant workers have to incur training costs. As a result, firms are biased against entrant workers, who, in turn, stay unemployed for a prolonged period of time, exposing themselves to a persistent skill loss shock. In this environment, an obvious market failure arises. Firms who hire entrant workers provide a benefit to society by helping these workers stay unemployed for a shorter period of time, thus reducing the probability of skill loss. But since firms cannot internalize this societal contribution, they choose to discriminate against entrant workers causing a welfare loss. We use a calibrated version of the model to quantitatively assess the effectiveness of three government interventions, whose common goal is to reduce bias against entrant workers. We find that the most effective intervention takes the form of an "internship", where firms can hire entrant workers at an (exogenous) lower wage.
Subjects: 
search and matching
unemployment
labor market entrants
training
skills
JEL: 
E24
E60
J24
J64
Document Type: 
Working Paper

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