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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://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 Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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    1. 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.
    2. Harry J. Holzer & Robert J. LaLonde, 1999. "Job Change and Job Stability Among Less-Skilled Young Workers," JCPR Working Papers 80, Northwestern University/University of Chicago Joint Center for Poverty Research.
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