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The Vanishing Procyclicality of Labor Productivity

Thijs van Rens () and Jordi Galí ()

No 705, 2010 Meeting Papers from Society for Economic Dynamics

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 search frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in search frictions may also have contributed to the observed decline in output volatility.

Date: 2010
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Working Paper: The vanishing procyclicality of labor productivity (2010) Downloads
Working Paper: The vanishing procyclicality of labor productivity (2010) Downloads
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More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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