The Demand for Youth: Implications for the Hours Volatility Puzzle
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.
We thank Manuel Amador, Paul Beaudry, Larry Christiano, Marty Eichenbaum, Valerie Ramey, Sergio Rebelo, Victor Rios-Rull, William Gui Woolston, and numerous workshop participants for helpful comments. Siu thanks the Social Sciences and Humanities Research Council of Canada for financial support. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System, any other person associated with the Federal Reserve System, or the National Bureau of Economic Research.