Youth unemployment and welfare gains from eliminating business cycles - The case of Poland

In many countries, business cycle fluctuations of unemployment rate among youth are much higher than that of other cohorts. We investigate how this life-cycle heterogeneity of unemployment risk affects welfare gains from eliminating business cycles in Poland. We use an overlapping generations version of the heterogeneous agent model with aggregate risk and borrowing constraints. We find that accounting for life-cycle heterogeneity of unemployment risk can increase the gains even by 60%. The results also show that consumption of young cohorts drops due to business cycles at least a few times more than the average for the whole population.