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On‐the‐Job Learning and News‐Driven Business Cycles

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  • KUAN‐JEN CHEN
  • CHING‐CHONG LAI

Abstract

This paper proposes a new channel of on‐the‐job learning to explain the positive comovement between consumption and employment following good news about future productivity. The new recruits can generate an additional stream of output production in all future periods, and the firm's labor demand is thus characterized by the forward‐looking property. Therefore, the firm is motivated to hire more new recruits in advance in response to good news about future productivity. Once the increase in labor demand is greater than the decrease in labor supply caused by the income effect, the coincident rise in consumption and employment can be driven by the news shock. When such a channel is paired with investment adjustment costs and the endogenous capacity utilization rate, this paper provides a plausible explanation for simultaneous booms in current consumption, investment, output, and employment to match the empirical evidence under the news shock.

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  • Kuan‐Jen Chen & Ching‐Chong Lai, 2015. "On‐the‐Job Learning and News‐Driven Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(2-3), pages 261-294, March.
    • Handle: RePEc:wly:jmoncb:v:47:y:2015:i:2-3:p:261-294
    DOI: 10.1111/jmcb.12176
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    2. Chen, Kuan-Jen & Lai, Ching-Chong & Lai, Ting-Wei, 2016. "The Division of Temporary and Permanent Employment and Business Cycle Fluctuations," MPRA Paper 72078, University Library of Munich, Germany.
    3. Konstantinos Angelopoulos & Andrea Benecchi & Jim Malley, 2017. "Can Subsidising Job-Related Training Reduce Inequality?," CESifo Working Paper Series 6605, CESifo.
    4. Konstantinos Angelopoulos & Andrea Benecchi & James Malley, 2017. "Can subsidising job-related training reduce inequality?," Working Papers 2017_10, Business School - Economics, University of Glasgow.

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