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Anticipated Productivity and the Labor Market

Ryan Chahrour, Sanjay Chugh and Tristan Potter

No 992, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We identify the main shock driving the covariance of the labor market and output. The shock drives strong business cycle comovement among output, consumption, investment, hours, and stock prices but is essentially orthogonal to business cycle fluctuations in TFP. Yet, the shock is associated with future persistent TFP fluctuations, consistent with theories of technology news. A standard labor search model in which wages are determined by a cash flow sharing rule, rather than the net present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with the empirical responses of a broad panel of wage series.

Keywords: News Shocks; Wages; Search and Matching; Business Cycles (search for similar items in EconPapers)
JEL-codes: E32 E24 (search for similar items in EconPapers)
Date: 2020-01-31
New Economics Papers: this item is included in nep-dge and nep-mac
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