Revisiting the Hypothesis of High Discounts and High Unemployment

Paolo Martellini (), Guido Menzio and Ludo Visschers
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Paolo Martellini: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We revisit the hypothesis that labor market ?uctuations are driven by shocks to the discount rate. Using a model in which the UE and the EU rates are endogenous, we show that an increase in the discount rate leads to a decline in both the UE and the EU rates. In the data, though, the UE and EU rates move against each other at business cycle frequency. Using a lifecycle model with human capital accumulation on the job, we show that an increase in the discount rate does indeed lead to a decline in the aggregate UE rate and to an increase in the aggregate EU rate. However, the decline in the UE rate is larger for younger workers than for older workers and the EU rate increases only for younger workers. In the data, ?uctuations in the UE and EU rates at the business cycle frequency are nearly identical across age groups.

Keywords: Unemployment Fluctuations; Discount Rate; Human Capital; Lifecycle Earnings (search for similar items in EconPapers)
JEL-codes: E24 J63 J64 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-06-20
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Revisiting the Hypothesis of High Discounts and High Unemployment (2021)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2020)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2020)
Working Paper: Revisiting the Hypothesis of High Discounts and High Unemployment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:19-011

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