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Title:The cost of business cycles for unskilled workers PDF Logo
Authors:Mukoyama, Toshihiko
Sahin, Aysegül
Issue Date:2005
Series/Report no.:Staff Report, Federal Reserve Bank of New York 214
Abstract:This paper reconsiders the cost of business cycles under incomplete markets. Primarily, we focus on the heterogeneity in the cost of business cycles among agents with different skill levels. 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 set up a dynamic general equilibrium model with incomplete markets, in which there is heterogeneity in skills, employment status, asset holding, and the discount factor. We find that the welfare cost of business cycles for unskilled workers is substantially higher than that for skilled workers.
Subjects:cost of business cycles, incomplete markets, skill and unemployment
JEL:E24
E32
E61
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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