Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/150367
Authors: 
Haan, Wouter J. Den
Sedlacek, Petr
Year of Publication: 
2014
Citation: 
[Journal:] Quantitative Economics [ISSN:] 1759-7331 [Volume:] 5 [Year:] 2014 [Issue:] 2 [Pages:] 297-349
Abstract: 
This paper develops a model according to which the costs of business cycles are nontrivial because they reduce the average level of output. The reason is an interaction between job creation costs and an agency problem. The agency problem triggers separations during economic downturns even though both the employer and the worker would be better off if the job was not discontinued, that is, affected jobs have strictly positive surplus values. Similarly, booms make it possible for more jobs to overcome the agency problem. These effects do not offset each other, because business cycles reduce the expected job duration for these jobs. With positive job creation costs, business cycles then reduce the creation of valuable jobs and lower average activity levels. Considering a wide range of parameter values, we find estimates for the cost of business cycles ranging from 2.03% to 12.7% of gross domestic product.
Subjects: 
Agency problem
welfare
permanent job loss
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/3.0/
Document Type: 
Article

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