Revisiting the welfare effects of eliminating business cycles

Krusell, Per; Mukoyama, Toshihiko; Şahin, Ayşegül; Smith, Anthony A.

doi:10.1016/j.red.2009.01.002

Cited by 150 publications

(100 citation statements)

References 12 publications

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“…In recessions, the probability of working part-time involuntarily rises, but the welfare implications would be negligible if the fast dynamics of involuntary part-time work were to remain unaltered. This finding echoes the result that distinguishing short-from long-term unemployment is paramount to measure the cost of business cycle fluctuations (Krusell et al, 2009). Second, fluctuations in involuntary part-time work entail some non-negligible welfare losses.…”

Section: Experiments Ii: Cyclicality In the Risk Of Involuntary Part-tsupporting

confidence: 72%

“…We assume that z is governed by a symmetric Markov process with parameter ρ z . This construct is borrowed from Krusell et al (2009Krusell et al ( , 2015. In particular, Krusell et al (2015) analyze the effects of business cycle fluctuations in job availability on gross worker flows between employment, unemployment and nonparticipation.…”

Section: Experiments Ii: Cyclicality In the Risk Of Involuntary Part-tmentioning

confidence: 99%

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How Bad is Involuntary Part-Time Work?

Borowczyk-Martins

Lalé

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents inIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. We use a set of empirical and analytical tools to conduct parallel analyses of involuntary parttime work and unemployment in the U.S. labor market. In the empirical analysis, we document that the similar cyclical behavior of involuntary part-time work and unemployment masks major differences in the underlying dynamics. Unlike unemployment, variations in involuntary part-time work are mostly explained by its interaction with full-time employment, and since the Great Recession employed workers are at a greater risk of working part-time involuntarily than being unemployed. In the theoretical analysis, we show that the higher probability of regaining full-time employment is key to distinguish involuntary part-time work from unemployment from a worker's perspective. We also quantify the welfare costs of cyclical fluctuations in involuntary part-time work, and the amplification of these costs arising from the elevated levels of involuntary part-time work observed since the Great Recession.JEL Classification: E21, E32, J21

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Section: Experiments Ii: Cyclicality In the Risk Of Involuntary Part-tsupporting

confidence: 72%

Section: Experiments Ii: Cyclicality In the Risk Of Involuntary Part-tmentioning

confidence: 99%

How Bad is Involuntary Part-Time Work?

Borowczyk-Martins

Lalé

2015

SSRN Journal

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“…This result is completely at odds with the neoclassical synthesis and the Keynesian legacies, but also, to a lesser extent, with a recent literature that documents far larger costs of business cycles (Beaudry and Pages (1999), Krebs (2007), Storesletten et al (2001), Barlevy (2004), De Santis (2007 and Krusell et al (2009)). …”

Section: Introductionmentioning

confidence: 70%

“…However, in as far as individual income fluctuations are transitory, the costs of the business cycle are still low, even negligible (Krusell and Smith (1999)), mainly because consumption can be smoothed through capital accumulation. On the other hand, when individual income variations are more persistent, the cost of business cycles becomes more substantial, at least 1% percent of the permanent consumption (Beaudry and Pages (1999), Krebs (2007), Storesletten et al (2001), De Santis (2007, Krusell et al (2009)). Reis (2009) shows that the persistence also plays a key role when only aggregate shocks are considered.…”

Section: Introductionmentioning

confidence: 99%

Matching frictions, unemployment dynamics and the cost of business cycles

Hairault

Langot

Osotimehin

2010

Review of Economic Dynamics

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We investigate the welfare cost of business cycles implied by matching frictions. First, using the reduced-form of the matching model, we show that job finding rate fluctuations generate intrinsically a non-linear effect on unemployment: positive shocks reduce unemployment less than negative shocks increase it. For the observed process of the job finding rate in the US economy, this intrinsic asymmetry increases average unemployment, which leads to substantial business cycles costs. Moreover, the structural matching model embeds other non-linearities, which alter the average job finding rate and consequently the welfare cost of business cycles. Our theory suggests to subsidizing employment in order to dampen the impact of the job finding rate fluctuations on welfare.

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“…Theoretical research addressing this suggests that there is heterogeneity across households in this estimate which the aggregation hides. Krusell and Smith (1999), Krusell et al (2009) and Mukoyama and Şahin (2006) conclude that the poor, unskilled and unemployed are the most exposed to welfare losses from economic fluctuations: those agents who typically do not engage in capital markets. Carroll (2000) further suggests that the distribution of wealth is an important determinant in agents' experiences from macroeconomic phenomena, a point also emphasised by Mankiw (2000) when discussing the aggregate effects of fiscal policy.…”

Section: Introductionmentioning

confidence: 99%

Austerity versus stimulus: the polarizing effect of fiscal policy

McManus

2015

Oxford Economic Papers

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Through constructing a New-Keynesian DSGE model with heterogeneous agents, this paper investigates both the aggregate and distributional consequences of fiscal policy. Polarized preferences over the conduct of fiscal policy emerge between those agents who participate in credit markets and those who do not. Exogenous shocks impact the two types of agent differently, and, as a result, fiscal policy responses to these shocks produce minimal aggregate welfare effects as the gains of one agent are matched by the losses of another. There is, therefore, a normative justification for countercyclical fiscal policy, but on redistributive rather than stabilisation grounds. JEL Classification: E30; E62; H30.

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Revisiting the welfare effects of eliminating business cycles

Cited by 150 publications

References 12 publications

How Bad is Involuntary Part-Time Work?

How Bad is Involuntary Part-Time Work?

Matching frictions, unemployment dynamics and the cost of business cycles

Austerity versus stimulus: the polarizing effect of fiscal policy

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