Costs of business cycles for unskilled workers$

Unskilled workers are subject to a much larger risk of unemployment during recessions than are skilled workers. Moreover, unskilled workers earn less income, which limits their ability to selfinsure. We examine how this heterogeneity in unemployment risk and income across different skill groups translates into heterogeneity in the cost of business cycles. We find that the welfare cost of business cycles for unskilled workers is substantially higher than the welfare cost for skilled workers. r 2006 Elsevier B.V. All rights reserved