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Office of Survey Methods Research
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Published Year: 2013
Survey/Program(s): Office of Prices and Living Conditions
Catalog: Economic Working Paper
WP Number: WP-460
Publication Status / Disposition: Office of Prices and Living Conditions (Revised September 2015).
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Occupational Hierarchy by Learning Costs and the Equal Elasticity of Labor Demand Puzzle
Abstract
Empirical studies that show an elastic labor demand from supply shocks such as immigration and an inelastic labor demand from wage shocks such as changes in the minimum wage contradict the typical model?s prediction of an equal elasticity. This paper explains this apparent contradiction by generalizing the typical model of complementarity between skill groups and endogenizes that complementarity. Agents choose among complementary occupations on a hierarchy of heterogeneous learning costs. The new choices of low skilled workers to higher cost/wage occupations offset the effects of low skilled supply and wage shocks, making the effects more and less elastic respectively.