The Cost of Benefits, Financial Conditions, and Employment Dynamics in Recent U.S. Recoveries
52 Pages Posted: 25 Dec 2013
Date Written: December 23, 2013
This paper explores how much firm-paid employee benefits and firms' financial conditions have contributed to delayed employment recoveries relative to output since 1990, using a DSGE model. Empirically, I document the underexplored pro-cyclicality of per worker benefit costs. Post-1990 period differs from before in that: (1) there have been larger increases of such quasi-fixed employment costs at recoveries; (2) tight financial conditions have also persisted longer into recent recoveries. The model generates 3-to-7-quarter delays in employment recoveries for the post-1990 period but no delay for before, consistent with data; and it produces more than 76 percent of employment volatility.
Keywords: Employment recoveries, benefit costs, extensive and intensive margins, financial conditions, enforcement constraint, DSGE model, business cycle, dynamic programming
JEL Classification: E32, J33, J21, C68, C61
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