The Employment-Productivity Relation with Employment Criteria

Michael Sattinger and Sumati Srinivas ()

Discussion Papers from University at Albany, SUNY, Department of Economics

Abstract: This paper analyzes labor market responses to productivity shocks when firms set employment criteria on the basis of the likelihood of hiring high productivity or low productivity workers. In response to a positive productivity shock, firms do not raise the criterion as much as the shock, increasing the proportion of low productivity workers among the employed. The observed average productivity may respond negligibly even if employment changes substantially in response to the shock. Interest rate fluctuations can yield an opposite relation between productivity and employment, explaining the weak empirical relationship between the variables.

Date: 2003
New Economics Papers: this item is included in nep-lab and nep-ltv
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