The Vanishing Procyclicality of Labor Productivity
49 Pages Posted: 2 Jun 2014
There are 2 versions of this paper
The Vanishing Procyclicality of Labor Productivity
Date Written: March 2014
Abstract
We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity vanished, (ii) the relative volatility of employment rose, and (iii) the relative (and absolute) volatility of the real wage rose. We propose an explanation for all three changes that is based on a common source: the decline in labor market turnover, which reduced hiring frictions. We develop a simple model with hiring frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the decline in turnover may also have contributed to the observed decline in output volatility.
Keywords: effort choice, hiring frictions, labor hoarding, labor market turnover, wage rigidities
JEL Classification: E24, E32
Suggested Citation: Suggested Citation