American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Learning on the Job and the Cost of Business Cycles
American Economic Journal: Macroeconomics
vol. 14,
no. 4, October 2022
(pp. 341–77)
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. Empirically, unemployment and the job-finding rate are negatively correlated. Since new jobs are the product of these two from the employment transition equation, business cycles imply fewer new jobs. Learning on the job implies that the resulting decrease in employment reduces aggregate human capital. This reduces incentives to post vacancies, further decreasing employment and human capital. We quantify this mechanism and find large output and welfare costs of business cycles.Citation
Walentin, Karl, and Andreas Westermark. 2022. "Learning on the Job and the Cost of Business Cycles." American Economic Journal: Macroeconomics, 14 (4): 341–77. DOI: 10.1257/mac.20180473Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J63 Labor Turnover; Vacancies; Layoffs
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