The Vanishing Procyclicality of Labor Productivity

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 e§ort, 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


Issue Date:
Jan 01 2014
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/270221
Language:
English
Total Pages:
47
JEL Codes:
E24; E32
Series Statement:
WERP 1062




 Record created 2018-03-29, last modified 2018-03-29

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