Aggregate Implications of Labor Market Distortions: The Recession of 2008-9 and Beyond

49 Pages Posted: 25 Jan 2010 Last revised: 15 Feb 2010

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: January 2010

Abstract

The aggregate neoclassical growth model - with a labor income tax or "labor market distortion" that began growing at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Of particular interest is the fact that the model - with no explicit financial market - has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact the real consumption fell significantly below trend during 2008 suggests that labor usage per capita could get somewhat lower than it was at the end of 2009, and is expected to remain below pre-recession levels even after the "recovery."

Suggested Citation

Mulligan, Casey B., Aggregate Implications of Labor Market Distortions: The Recession of 2008-9 and Beyond (January 2010). NBER Working Paper No. w15681. Available at SSRN: https://ssrn.com/abstract=1540985

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-9017 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
22
Abstract Views
318
PlumX Metrics