Labor Supply Factors and Economic Fluctuations

20 Pages Posted: 20 Aug 2018

Date Written: August 2018

Abstract

We propose a new Vector Autoregressive identification scheme that enables us to disentangle labor supply shocks from wage bargaining shocks. Identification is achieved by imposing sign restrictions on the responses of the unemployment rate and the labor force participation rate to the two shocks. According to our analysis on United States data over the period 1985–2014, labor supply shocks and wage bargaining shocks are important drivers of output and unemployment both in the short run and in the long run. These results suggest that identification strategies used in estimated new Keynesian models to disentangle labor market shocks may be misguided.

Suggested Citation

Foroni, Claudia and Furlanetto, Francesco, Labor Supply Factors and Economic Fluctuations (August 2018). International Economic Review, Vol. 59, Issue 3, pp. 1491-1510, 2018. Available at SSRN: https://ssrn.com/abstract=3233211 or http://dx.doi.org/10.1111/iere.12311

Claudia Foroni (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Francesco Furlanetto

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

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