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Costs of Business Cycles for Unskilled Workers

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  • MUKOYAMA, Toshihiko
  • ŞAHIN, Ayşegül

Abstract

This paper reconsiders the cost of business cycles under market incompleteness. Primarily, we focus on the heterogeneity in the cost among different skill groups. Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers. Moreover, unskilled workers earn less income, which limits their ability to self-insure. We examine how this heterogeneity in unemployment risk and income translates into heterogeneity in the cost of business cycles. We find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers.

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Bibliographic Info

Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number 15-2005.

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Length: 43 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:mtl:montec:15-2005

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Keywords: cost of business cycles; incomplete markets; skill and unemployment;

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References

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  1. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December.
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  5. Andrew Atkeson & Christopher Phelan, 1994. "Reconsidering the Costs of Business Cycles with Incomplete Markets," NBER Working Papers 4719, National Bureau of Economic Research, Inc.
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  7. Mukoyama, Toshihiko & Sahin, Aysegul, 2006. "Costs of business cycles for unskilled workers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2179-2193, November.
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  10. Adalbert Mayer, 2004. "Education, Self-Selection and Intergenerational Transmission of Abilities," 2004 Meeting Papers 107, Society for Economic Dynamics.
  11. Per Krusell & Toshihiko Mukoyama & Aysegul Sahin & Anthony A. Smith, Jr., 2008. "Appendices for "Revisiting the Welfare Effects of Eliminating Business Cycles"," Technical Appendices 08-211, Review of Economic Dynamics.
  12. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
  13. Gadi Barlevy, 2003. "The Cost of Business Cycles Under Endogenous Growth," NBER Working Papers 9970, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Per Krusell & Toshihiko Mukoyama & Aysegul Sahin & Anthony A. Smith, Jr., 2008. "Appendices for "Revisiting the Welfare Effects of Eliminating Business Cycles"," Technical Appendices 08-211, Review of Economic Dynamics.
  2. Mukoyama, Toshihiko & Sahin, Aysegul, 2006. "Costs of business cycles for unskilled workers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2179-2193, November.
  3. Ascari, Guido & Ropele, Tiziano, 2012. "Disinflation in a DSGE perspective: Sacrifice ratio or welfare gain ratio?," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 169-182.
  4. Adam Elbourne & Debby Lanser & Bert Smid & Martin Vromans, 2008. "Macroeconomic resilience in a DSGE model," CPB Discussion Paper 96, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Michał Gradzewicz & Krzysztof Makarski & Joanna Tyrowicz, 2013. "Do We Really Need to Start From Scratch? Economic Theory on Economic Crises," Working Papers 2013-17, Faculty of Economic Sciences, University of Warsaw.
  6. Colleen Carey & Stephen H. Shore, 2013. "From the Peaks to the Valleys: Cross-State Evidence on Income Volatility over the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 549-562, May.
  7. Mueller, Andreas I., 2012. "Separations, Sorting and Cyclical Unemployment," IZA Discussion Papers 6849, Institute for the Study of Labor (IZA).
  8. Sparber, Chad, 2011. "Unemployment, Skills, and the Business Cycle Since 2000," Working Papers 2011-04, Department of Economics, Colgate University.
  9. M. Alper Çenesiz & Christian Pierdzioch, 2010. "Capital mobility and labor market volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 391-409, December.
  10. Per Krusell & Toshihiko Mukoyama & Aysegul Sahin, 2009. "Labor-Market Matching with Precautionary Savings and Aggregate Fluctuations," NBER Working Papers 15282, National Bureau of Economic Research, Inc.
  11. Kyle Chauvin & David Laibson & Johanna Mollerstrom, 2011. "Asset Bubbles and the Cost of Economic Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 233-260, 08.
  12. Richard McManus, 2013. "Austerity versus Stimulus: A DSGE Political Economy Explanation," Discussion Papers 13/09, Department of Economics, University of York.
  13. Hannsgen, Greg, 2008. "The welfare economics of macroeconomics and chooser-dependent, non-expected utility preferences: A Senian critique with an application to the costs of the business cycle," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1980-1993, October.
  14. Richard McManus, 2013. ""We're all in this together"? A DSGE interpretation," Discussion Papers 13/08, Department of Economics, University of York.
  15. Philip Jung & Keith Kuester, 2008. "The (un)importance of unemployment fluctuations for welfare," Working Papers 08-31, Federal Reserve Bank of Philadelphia.
  16. Greg Hannsgen, 2007. "Are the Costs of the Business Cycle 'Trivially Small'?," Economics Working Paper Archive wp_492, Levy Economics Institute.

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