EX-POST HETEROGENEITY AND THE BUSINESS-CYCLE

A temporary heterogeneity in individual skills is introduced in the in divisible labor model studied by Rogerson (1984) and Hansen (1985) and the model is calibrated and simulated. The results suggest that heter ogeneity may be a very important factor affecting the volatilities and comovements of output and other variables. The results also show that the average quality variation of employed workers can be as much as 1 6 percent of the output volatility.