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Learning on the Job and the Cost of Business Cycles

Karl Walentin () and Andreas Westermark ()
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Andreas Westermark: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 353, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We show that business cycles reduce welfare through a decrease in the average level of employment in a labor market search model with learning on-the-job and skill loss during unemployment. A negative correlation between unemployment and vacancies implies, via the concavity of the matching function, that business cycles reduce the average number of new jobs and employment. Learning on-the-job implies that the decrease in employment reduces aggregate human capital. This, in turn, reduces the incentives to post vacancies, further decreasing employment and human capital. We quantify this mechanism and nd large output and welfare costs of business cycles.

Keywords: Search and matching; labor market; human capital; stabilization policy; skill loss (search for similar items in EconPapers)
JEL-codes: E32 J64 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2018-04-01, Revised 2018-06-01
New Economics Papers: this item is included in nep-dge and nep-mac
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