Innovations Induce Asymmetric Employment Movements

This paper provides a labour supply explanation to the observation thatin Germany employment changes are asymmetric during the business cycle.Employment increases are slower, because the reservation wage of workersincreases in times of job uncertainty. Workers are afraid in those periods oflosing their sunk and necessary human capital investments. They weigh therisks and benefits of investing in human capital with their certain outsideoption when they decide about staying in the labour market. Humancapital investments are sunk and necessary, because firms need new skillswhile older skills get obsolete at a constant rate. Skill obsolescence is induced by innovations.

Zwick, Thomas (1999), Innovations Induce Asymmetric Employment Movements, ZEW Discussion Paper No. 99-24, Mannheim.