The Impact of Young Workers on the Aggregate Labor Market *

An increase in the share of youth in the working age population of one state or region relative to the rest of the United States causes a sharp reduction in that state's relative unemployment rate and a modest increase in its labor force participation rate. This is inconsistent with many theories of the labor market, but can be easily explained by a model of frictional unemployment with on-the-job search. The theory makes strong predictions regarding the behavior of wages which are shown to be consistent with the data. The paper also reconciles its findings with an existing body of apparently contradictory empirical evidence. Robert Topel, two anonymous referees, and many seminar participants. Thanks to Susan Gorel for providing me with cross-state unemployment and participation rates for different age and sex groups, to David Neumark for providing me with his crosscountry time series of unemployment rates, to Joydeep Roy for research assistance, and to the National Science Foundation grant SBR-9709881 and SES-0079345 for financial support.

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