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.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics