Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189953 
Year of Publication: 
2018
Series/Report no.: 
Sveriges Riksbank Working Paper Series No. 353
Publisher: 
Sveriges Riksbank, Stockholm
Abstract: 
We show that business cycles reduce welfare through a decrease in the average level of employ- ment in a labor market search model with learning on-the-job and skill loss during unemployment. A negative correlation between unemployment and vacancies implies, via the concavity of the matching function, that business cycles reduce the average number of new jobs and employment. Learning on-the-job implies that the decrease in employment reduces aggregate human capital. This, in turn, reduces the incentives to post vacancies, further decreasing employment and human capital. We quantify this mechanism and .nd large output and welfare costs of business cycles.
Subjects: 
Search and matching
labor market
human capital
stabilization policy
skill loss
JEL: 
E32
J64
Document Type: 
Working Paper

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