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Cyclical Employment and Learning Ability

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  • Jongsuk Han

    (University of Rochester)

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    Abstract

    I empirically document that ability is an important determinant of individual employment rates over the business cycle. Using the Armed Forces Qualication Test score as a proxy for individual ability, I find that high ability workers have a less procyclical employment rate than low ability workers even after conditioning on experience, education or average hourly wage. Moreover, the ability and education effect on employment cyclicality decreases over the life-cycle but the ability effect decreases much more gradually than the education effect. In the second part of the paper, I build a life-cycle model with human capital accumulation through learning-by-doing where agents have heterogeneous learning ability. High ability agents have a steeper human capital accumulation slope which delivers high future labor income. In recession, employment rates for all agents fall due to low labor income. However, high ability agents' employment rate decreases less than others because the current employment increases future labor income. The calibrated model, which simultaneously matches employment and wage proles, is consistent with the major cyclical properties observed in the data.

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1022.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:1022

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    1. Mark Huggett, 2003. "Human Capital and Earnings Distribution Dynamics," Working Papers gueconwpa~03-03-10, Georgetown University, Department of Economics.
    2. Kim B. Clark & Lawrence H. Summers, 1981. "Demographic Differences in Cyclical Employment Variation," Journal of Human Resources, University of Wisconsin Press, vol. 16(1), pages 61-79.
    3. Cooper, Russell & Johri, Alok, 2002. "Learning-by-doing and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1539-1566, November.
    4. CASTRO, Rui & COEN-PIRANI, Daniele, 2005. "Why Have Aggregate Skilled Hours Become so Cyclical since the Mid-1980’s?," Cahiers de recherche 24-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    5. Gary D. Hansen & Selo Imrohoroglu, 2007. "Business Cycle Fluctuations and the Life Cycle: How Important is On-The-Job Skill Accumulation?," NBER Working Papers 13603, National Bureau of Economic Research, Inc.
    6. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Consumption and Risk Sharing Over the Life Cycle," Seminar Papers 702, Stockholm University, Institute for International Economic Studies.
    7. McKinley L. Blackburn & David Neumark, 1991. "Omitted-Ability Bias and the Increase in the Return to Schooling," NBER Working Papers 3693, National Bureau of Economic Research, Inc.
    8. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    9. Rui Castro & Daniele Coen-Pirani, . "Why Have Aggregate Skilled Hours," GSIA Working Papers 2006-E27, Carnegie Mellon University, Tepper School of Business.
    10. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
    11. Nir Jaimovich & Henry E. Siu, 2008. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," NBER Working Papers 14063, National Bureau of Economic Research, Inc.
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