Tag Archives: skill erosion

Human capital depreciation during unemployment – does it matter for monetary policy?

Lien Laureys

In many countries the great recession that followed the financial crisis led to sharp rises in not only the rate, but also the duration of unemployment.  These were bad in themselves, but many were further worried that because lengthy unemployment spells are thought to erode workers’ human capital, productive potential would be damaged.  The question I ask is whether this should affect the conduct of monetary policy. The short answer is no. But it may still be a question worth exploring further.

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Filed under Macroeconomics, Monetary Policy