A Human Capital Explanation of Real Business Cycles

Szilard Benk, Tamas Csabafi, Jing Dang, Max Gillman and Michal Kejak

Journal of Human Capital, 2024, vol. 18, issue 2, 305 - 345

Abstract: We contribute an alternative explanation of business cycles by using human capital investment as a second sector tied down with accounting methods. Inputs of education expenditure and tertiary student time in this sector enable explanation of a broad set of business-cycle moments. Labor time share, labor productivity, and consumption correlations with output are well explained, a challenge difficult to meet in the one-sector models. Human capital deepening in the human capital investment sector occurs during contractions, while physical capital deepening in the goods sectors occurs during expansions. The external margin from human capital investment clarifies conflicting estimates of the labor elasticity.

Date: 2024
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