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Wealth, search, and human capital over the business cycle

Year: 2025

Type: article

Abstract: We assess how an economy’s wealth distribution shapes its labor market dynamics. We do so in a quantitative job-ladder model featuring directed search, incomplete markets, aggregate shocks, and endogenous on-the-job human capital accumulation. Poorer workers apply for lower-wage jobs when unemployed and under-accumulate human capital when employed to self-insure against unemployment risk. In response to an aggregate downturn, poorer workers reduce their human capital accumulation, all else equal, while richer workers increase it. The wealth distribution therefore matters for the response of aggregate human capital. In the calibrated model, we show that a negative aggregate productivity shock leads to a persistent decline in aggregate human capital, and a more dispersed wealth distribution would amplify this decline.

Source: Macroeconomic Dynamics

DOI: 10.1017/s1365100525000215

Authors: Benjamin Griffy, Stanislav Rabinovich

Institutions: University at Albany, State University of New York, University of North Carolina at Chapel Hill

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Reduced inequalities, No poverty

Open Access status: hybrid

Estimated APC paid: $3,550