The Cost of Human Capital Depreciation During Unemployment

This paper argues that human capital depreciation during unemployment generates an externality in job creation: firms ignore how their hiring decisions affect the skill composition of the future unemployment pool, and hence the output produced by new hires. As a consequence, job creation is too low from a social point of view. But the extent to which it is too low varies over the cycle. The reason is that the increase in the expected productivity of a new hire from next period’s unemployment pool caused by hiring an additional worker today, depends on the pool’s composition, which varies over the cycle

Affect (linguistics · Business cycle · Capital (architecture · Capital formation · Depreciation (economics · Economics · Externality · Financial capital · Human capital · Labour economics · Macroeconomics · Market economy · Microeconomics · Point (geometry · Productivity · Unemployment · Economic Policies and Impacts · Firm Innovation and Growth · Labor market dynamics and wage inequality

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