Procyclical Skill Retooling and Equilibrium Search

We argue that more workers choose to switch occupations in booms than in recessions. That is, skill retooling is procyclical. This view is consistent with Lucas and Prescotts (1974) equilibrium search model modified with aggregate shocks and unemployment insurance. Empirical support is found in a unique Canadian administrative data set that measures the annual flow of workers (from 1979-1993) who separate from their jobs to 'return to school'. This flow is strongly procyclical. (Copyright: Elsevier)