The Cost of Human Capital Depreciation During Unemployment

Lien Laureys

The Economic Journal, 2021, vol. 131, issue 634, 827-850

Abstract: This paper argues that human capital depreciation during unemployment generates an externality in job creation: firms ignore how their hiring decisions affect the skill composition of the future unemployment pool, and hence the output produced by new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. The reason is that the increase in the expected productivity of a new hire from next period’s unemployment pool caused by hiring an additional worker today, depends on the pool’s composition, which varies over the cycle.

Date: 2021
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Related works:
Working Paper: The cost of human capital depreciation during unemployment (2014)
Working Paper: The Cost of Human Capital Depreciation during Unemployment (2014)
Working Paper: The cost of human capital depreciation during unemployment (2014)
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