Workers may also need time to acquire new skills, and total earnings lost during such a period of readjustment can be considerable. But experiences may vary widely. In this article, using a novel data set, Shigeru Fujita and Vilas Rao provide evidence on earnings losses after unemployment. Although the usefulness of the evidence is limited by the short sample period, the data set allows us to ask some important questions, the answers to which may help inform us about important macroeconomic issues such as the cost of business-cycle fluctuations and the benefits of policies intended to avoid such fluctuations.

This article appeared in the Fourth Quarter 2009 edition of Business Review.

View the Full Article