The cost of business cycles for unskilled workers

Toshihiko Mukoyama and Aysegul Sahin

No 214, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper reconsiders the cost of business cycles under incomplete markets. Primarily, we focus on the heterogeneity in the cost of business cycles among agents with different skill levels. Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers. Moreover, unskilled workers earn less income, which limits their ability to self-insure. We examine how this heterogeneity in unemployment risk and income translates into heterogeneity in the cost of business cycles. We set up a dynamic general equilibrium model with incomplete markets, in which there is heterogeneity in skills, employment status, asset holding, and the discount factor. We find that the welfare cost of business cycles for unskilled workers is substantially higher than that for skilled workers.

Keywords: skill and unemployment; incomplete markets; costs of business cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 E61 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2005-07-01
New Economics Papers: this item is included in nep-dge and nep-mac
Note: For a published version of this report, see Toshihiko Mukoyama and Ayşegül Şahin, "Costs of Business Cycles for Unskilled Workers," Journal of Monetary Economics 53, no. 8 (November 2006): 2179-93.
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Costs of business cycles for unskilled workers (2006)
Working Paper: Costs of Business Cycles for Unskilled Workers (2005)
Working Paper: Costs of Business Cycles for Unskilled Workers (2005)
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