The Vanishing Procyclicality of Labor Productivity

No 5099, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model with labor market frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in frictions may also have contributed to the observed decline in output volatility.

Keywords: effort choice; wage rigidities; labor market frictions; labor hoarding (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-07
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-lab, nep-mac and nep-mic
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Citations: View citations in EconPapers (36)

Published - published in: Economic Journal, 2021, 131 (633), 302 - 326

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