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The business cycle human capital accumulation nexus and its effect on hours worked volatility

Diana Alessandrini (), Stephen Kosempel () and Thanasis Stengos ()

Journal of Economic Dynamics and Control, 2015, vol. 51, issue C, 356-377

Abstract: This paper studies hours worked volatility and the cyclicality of human capital investments by embedding a Ben-Porath life-cycle model of human capital accumulation into an RBC setting. Agents differ across two dimensions: age and productivity in learning. Our results show that individuals invest more in human capital during economic downturns. However, human capital accumulation is more counter-cyclical for young and low-productivity individuals because they face a lower opportunity cost of education and a higher marginal product of human capital. These results are confirmed empirically using US data from the Current Population Survey and the American Time Use Survey. In addition, the paper contributes to the RBC literature by showing that the model׳s business cycle properties, in particular hours worked volatility, are sensitive to assumptions of heterogeneity. Introducing heterogeneity in productivity increases the volatility of aggregate hours worked and changes the life-cycle profile for hours volatility to better match the data.

Keywords: Hours worked volatility; Human capital accumulation; Business cycles; Heterogeneous agents (search for similar items in EconPapers)
JEL-codes: J22 J24 E32 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:51:y:2015:i:c:p:356-377

DOI: 10.1016/j.jedc.2014.11.004

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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