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Learning on the Job and the Cost of Business Cycles

Author

Listed:
  • Walentin, Karl

    (Research Department, Central Bank of Sweden)

  • Westermark, Andreas

    (Research Department, 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.

Suggested Citation

  • Walentin, Karl & Westermark, Andreas, 2018. "Learning on the Job and the Cost of Business Cycles," Working Paper Series 353, Sveriges Riksbank (Central Bank of Sweden), revised 01 Jun 2018.
  • Handle: RePEc:hhs:rbnkwp:0353
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    Cited by:

    1. Bradley, Jake, 2022. "Worker-Firm Screening and the Business Cycle," IZA Discussion Papers 15017, Institute of Labor Economics (IZA).
    2. Tervala, Juha, 2021. "Hysteresis and the welfare costs of recessions," Economic Modelling, Elsevier, vol. 95(C), pages 136-144.
    3. Jake Bradley, 2020. "Worker-firm screening and the business cycle," Discussion Papers 2020/11, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    4. Moscarini, Giuseppe & Postel-Vinay, Fabien, 2018. "On the Job Search and Business Cycles," IZA Discussion Papers 11853, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Search and matching; labor market; human capital; stabilization policy; skill loss;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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