Labor productivity, effort and the euro-area business cycle

Vivien Lewis () and Stefania Villa
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Vivien Lewis: Deutsche Bundesbank

No 1522, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Labor productivity is highly procyclical in the euro area. We investigate the sources of this procyclicality in an estimated New Keynesian business cycle model with labor search frictions and variable factor utilization in both capital and labor. Labor input can vary along three margins: employment, hours, and effort (or utilization). We find evidence for a significant use of the effort margin in labor adjustment. Moreover, a model that uses effort outperforms one with variable capital utilization or dominant technology shocks. Finally, the effort margin dampens inflation volatility.

Keywords: capital utilization; effort; labor productivity; inflation (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2026-03
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Related works:
Journal Article: Labor productivity, effort and the Euro Area business cycle (2026)
Working Paper: Labor productivity, effort and the Euro Area business cycle (2023)
Working Paper: Labor productivity, effort and the euro area business cycle (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1522_26

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