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Costs of Business Cycles for Unskilled Workers

  • MUKOYAMA, Toshihiko
  • ŞAHIN, Ayşegül

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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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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  1. Michael P. Keane & Eswar Prasad, 1993. "The Relation Between Skill Levels and the Cyclical Variability of Employment, Hours, and Wages," IMF Working Papers 93/44, International Monetary Fund.
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  9. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  10. Andrew Atkeson & Christopher Phelan, 1994. "Reconsidering the Costs of Business Cycles with Incomplete Markets," NBER Working Papers 4719, National Bureau of Economic Research, Inc.
  11. Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
  12. Jacob Mincer, 1991. "Education and Unemployment of Women," NBER Working Papers 3837, National Bureau of Economic Research, Inc.
  13. 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.
  14. Lindquist, Matthew J., 2002. "Capital-Skill Complementarity and Inequality Over the Business Cycle," Research Papers in Economics 2002:14, Stockholm University, Department of Economics, revised 01 Sep 2003.
  15. Topel, Robert, 1993. "What Have We Learned from Empirical Studies of Unemployment and Turnover?," American Economic Review, American Economic Association, vol. 83(2), pages 110-15, May.
  16. Toshihiko Mukoyama & Aysegul Sahin, 2005. "Costs of Business Cycles for Unskilled Workers," Working Papers 05002, Concordia University, Department of Economics.
  17. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
  18. 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.
  19. Jacob Mincer, 1991. "Education and Unemployment," NBER Working Papers 3838, National Bureau of Economic Research, Inc.
  20. Michael Keane & Eswar Prasad, 1993. "Skill Levels and the Cyclical Variability of Employment, Hours, and Wages," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 711-743, December.
  21. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
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