The cost of human capital depreciation during unemployment

Lien Laureys

No 505, Bank of England working papers from Bank of England

Abstract: Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool’s skill composition, and hence the output produced by other firms' 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. This is because the externality’s magnitude, which depends on the impact of job creation on the pool’s skill composition, reduces when the share of unemployed workers who already have eroded skills increases.

Keywords: Long-term unemployment; skill erosion; inefficiency (search for similar items in EconPapers)
JEL-codes: E24 E31 E52 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2014-08-22
New Economics Papers: this item is included in nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The Cost of Human Capital Depreciation During Unemployment (2021)
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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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0505

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