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The Vanishing Procyclicality of Labor Productivity

Jordi Galí () and Thijs van Rens ()

No 5099, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model with labor market frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in frictions may also have contributed to the observed decline in output volatility.

Keywords: labor hoarding; labor market frictions; wage rigidities; effort choice (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2010-07
New Economics Papers: this item is included in nep-bec, nep-cba, nep-dge, nep-lab, nep-mac and nep-mic
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Forthcoming in: Economic Journal, 2020

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http://ftp.iza.org/dp5099.pdf (application/pdf)

Related works:
Working Paper: The Vanishing Procyclicality of Labour Productivity (2020) Downloads
Working Paper: The Vanishing Procyclicality of Labour Productivity (2020) Downloads
Working Paper: The Vanishing Procyclicality of Labor Productivity (2015) Downloads
Working Paper: The Vanishing Procyclicality of Labor Productivity (2014) Downloads
Working Paper: The Vanishing Procyclicality of Labor Productivity (2014) Downloads
Working Paper: The Vanishing Procyclicality of Labor Productivity (2014) Downloads
Working Paper: The Vanishing Procyclicality of Labor Productivity (2010) Downloads
Working Paper: The vanishing procyclicality of labor productivity (2010) Downloads
Working Paper: The vanishing procyclicality of labor productivity (2010) Downloads
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