Time-varying Risk Premium and Unemployment Risk Across Age Groups

Download or read book Time-varying Risk Premium and Unemployment Risk Across Age Groups written by Indrajit Mitra and published by . This book was released on 2019 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that time-varying risk premium in financial markets can explain a key yet puzzling feature of labor markets: the large differences in unemployment risk across worker age-groups over the business cycle. Our search model features a time-varying risk premium and learning about unobserved heterogeneity in worker productivity. Their interaction generates large real effects through firms' labor policies. Our model predicts higher unemployment risk of younger workers relative to prime-age workers when risk premium is high, and the employment ratio of prime-age to young workers to be more cyclical in high beta industries. We find empirical support for these predictions.