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Cyclical Employment and Learning Ability

  • Jongsuk Han

    (University of Rochester)

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    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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    File URL: https://www.economicdynamics.org/meetpapers/2013/paper_1022.pdf
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    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
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Web page: http://www.EconomicDynamics.org/society.htm
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    1. Kim B. Clark & Lawrence H. Summers, 1980. "Demographic Differences in Cyclical Employment Variation," NBER Working Papers 0514, National Bureau of Economic Research, Inc.
    2. R Cooper & Alok Johri, 2000. "Learning by Doing and Aggregate Fluctuations," Department of Economics Working Papers 2000-02, McMaster University.
    3. Nir Jaimovich & Henry E. Siu, 2007. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," Discussion Papers 07-010, Stanford Institute for Economic Policy Research.
    4. 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.
    5. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
    6. 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.
    7. CASTRO, Rui & COEN-PIRANI, Daniele, 2005. "Why Have Aggregate Skilled Hours Become So Cyclical Since the Mid-1980's?," Cahiers de recherche 2005-19, Universite de Montreal, Departement de sciences economiques.
    8. Mark Hugget & Gustavo Ventura & Amir Yaron, 2002. "Human Capital and Earnings Distribution Dynamics," NBER Working Papers 9366, National Bureau of Economic Research, Inc.
    9. Hansen, Gary D. & Imrohoroglu, Selahattin, 2009. "Business cycle fluctuations and the life cycle: How important is on-the-job skill accumulation?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2293-2309, November.
    10. Rui Castro & Daniele Coen-Pirani, . "Why Have Aggregate Skilled Hours," GSIA Working Papers 2006-E27, Carnegie Mellon University, Tepper School of Business.
    11. 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.
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