Skill flows: A theory of human capital and unemployment

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Abstract

I present a theoretical macroeconomic model that investigates the link between long-run growth and labor-market dynamics. Workers accumulate human capital on the job, while suffering human capital depreciation during unemployment. On the aggregate level, high unemployment hinders skill formation, creating a drag on growth. The model features endogenous growth, stochastic regime shifts, and a time-varying distribution of wages. Nevertheless, much of the model's value comes from the fact that it admits a sharp analytical characterization of the forces at work. I solve for a competitive equilibrium and derive conditions under which it will be efficient.

Original languageEnglish (US)
Pages (from-to)84-122
Number of pages39
JournalReview of Economic Dynamics
Volume31
DOIs
StatePublished - Jan 2019

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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