The cost of human capital depreciation during unemployment

Skill erosion during unemployment was of particular concern as unemployment duration increased in the Great Recession. I argue that it generates an externality in job creation: firms ignore how their hiring decisions affect the unemployment pool’s skill composition, and hence the expected 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. This is because the externality’s magnitude, which depends on the impact of job creation on the pool’s skill composition, reduces when the share of unemployed workers who already have eroded skills increases

Essays on labor markets and macroeconomic policy

This thesis sheds light on several macroeconomic aspects of the labor market and economic policy. Chapter 1 analyzes whether the presence of human capital depreciation during unemployment calls for policy intervention. I argue that the latter is required because human capital depreciation during unemployment generates an externality in job creation. Chapter 2 looks at whether the prescription for conducting monetary policy changes once it is taken into account that workers’ human capital depreciates during periods of unemployment. In a New Keynesian framework, I find that optimal monetary policy stays close to strict inflation targeting. Chapter 3 investigates how the effect of an increase in government spend- ing on labor market outcomes depends on the strength of the short-run wealth effect on labor supply. I show that the role of the latter crucially depends on the degree of price and wage stickiness.Aquesta tesi estudia diversos aspectes macroeconòmics del mercat laboral i la política econòmica. El capítol 1 analitza si la presència de depreciació del capital humà durant els períodes d’atur requereix una intervenció política. Sostinc que aquesta última és necessaria degut a que la depreciació del capital humà durant els períodes d’atur, genera una externalitat en la creació de llocs de treball. El capítol 2 analitza si la prescripció de certes polítiques monetàries canvia un cop es té en compte que el capital humà dels treballadors es deprecia durant els períodes d’atur. En un marc neokeynesià, mostro que la política monetària òptima es manté prop de l’objectiu d’inflació estricte. El capítol 3 estudia com l’efecte d’un augment de la despesa pública en el mercat de treball depèn de la força de l’efecte riquesa a curt termini sobre l’oferta de treball. Mostro que el paper d’aquest últim depèn fonamentalment del grau de rigidesa de preus i salari

Optimal monetary policy in the presence of human capital depreciation during unemployment

When workers are exposed to human capital depreciation during periods of unemployment, hiring affects the unemployment pool’s composition in terms of skills, and hence the economy’s production potential. Introducing human capital depreciation during unemployment into an otherwise standard New Keynesian model with search frictions in the labour market leads to the finding that the flexibleprice allocation is no longer constrained-efficient even when the standard Hosios (1990) condition holds. This is because it generates a composition externality in job creation: firms ignore how their hiring decisions affect the extent to which the unemployed workers’ skills erode, and hence the output that can be produced by new matches. Consequently, it might be desirable from a social point of view for monetary policy to deviate from strict inflation targeting. Although optimal price inflation is no longer zero, strict inflation targeting is shown to stay close to the optimal policy

Monetary and macroprudential policies under rules and discretion

We study the policy design problem faced by central banks with both monetary and macroprudential objectives. We find that a time-consistent policy is preferred to a widely-studied class of simple monetary and macroprudential rules. When interest rates adjust to macroprudential policy in an augmented monetary policy rule, improved outcomes result. When policy authority is split between institutions, strategic interactions between discretionary policymakers can result in notably poor outcomes