TY  - RPRT
        AU  - Braxton, John Carter
AU  - Eley, Marlena
AU  - Rothbaum, Jonathan
AU  - Sledz, Shannon
        TI  - Countercyclical Earnings Risk and the Welfare Costs of Business Cycles
        PY  - 2026/Sep/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 18962
        UR  - https://www.iza.org/publications/dp18962
        AB  - Using linked employee--employer data, we show that recessions shift earnings changes toward negative skewness through more frequent layoffs, larger post-layoff earnings losses, and fewer upward job moves. We discipline a Bewley--Huggett--Aiyagari model with directed search and aggregate productivity shocks using these empirical moments. The calibrated model reproduces the cyclical shift in earnings skewness and implies that eliminating business cycles generates a welfare gain equivalent to 4.9% of consumption on average. This gain falls to essentially zero when cyclical changes in individual labor market risk are removed. Persistent earnings losses following recessionary job loss account for most of the welfare cost.
        KW  - countercyclical earnings risk
KW  - business cycles
KW  - earnings skewness
KW  - search friction
KW  - welfare costs
        ER  -