Skill frictions deepen post-shock GDP losses by 3 percent
A Bank of Russia working paper finds that incorporating skill loss during unemployment into macroeconomic models generates persistent output scars. Following a 25 percent supply shock, real GDP remains 3 percent lower after five years due to hiring bottlenecks in skill-intensive sectors.
The five-year scarring effect
Author Alexandra Glazova incorporated skill depreciation and worker mobility frictions into an agent-based macroeconomic model calibrated to Russian data across 20 sectors.
The simulation models a 3.75 percent quarterly loss of unused skills during unemployment and a one-year adaptation period for career switchers.
Under a single-quarter 25 percent supply shock, standard models show output recovering within 10 quarters.
In contrast, incorporating skill loss creates an enduring unemployment scar: real GDP remains roughly 3 percent below the baseline trajectory 20 quarters after the shock.
This divergence stems from prolonged hiring friction in skill-intensive industries where displaced workers cannot easily meet job requirements.
Targeted training beats broad subsidies
The paper demonstrates that output losses concentrate in high-skill sectors like real estate and professional services, whereas low-skill sectors recover rapidly.
Glazova tests policy responses and finds that retraining programs targeting just 7 percent of the unemployed into the two most affected industries match the macroeconomic recovery achieved by general training programs covering 50 percent of all jobless workers.
Precision over volume in labor policy
The study delivers a rigorous warning against treating labor as a homogeneous macroeconomic input.
By proving that a tiny, sector-specific training effort matches blanket retraining, the author exposes the inefficiency of broad fiscal subsidies.
Policymakers should heed these microeconomic frictions when designing post-crisis stimulus.
Source: The labor market: details matter
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