Economics seminars - Andreas Westermark (Sveriges Rikbank)

Learning on the Job and the Cost of Business Cycles
  • When Jan 29, 2019 from 04:00 PM to 06:00 PM (Europe/Brussels / UTC100)
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Abstract: We show that business cycles reduce welfare through a decrease in the average level of employment in a labor market search model with learning on-the-job and skill loss during unemployment. Empirically, unemployment and the job finding rate are negatively correlated. Since new jobs are the product of these two, business cycles imply that fewer news jobs are created and employment falls. Learning on-the-job implies that the decrease in employment reduces aggregate human capital. This reduces the incentives to post vacancies, further decreasing employment and human capital. We quantify this mechanism and find large output and welfare costs of business cycles.