Technology-Labor and Fiscal Spending Crowding-in Puzzles: The Role of Interpersonal Comparison

Mathias Klein and Christopher Krause

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: Standard real business cycle models predict a rise in employment following a technology shock. In contrast, numerous empirical studies show that a technology shock leads to a decline in labor input. In this paper, we demonstrate that a flexible price model enriched with interpersonal comparison of consumption expenditures is able to generate a fall in employment in response to a technology shock. The negative labor response is robust to different values assigned to the inverse Frisch elastictiy of labor supply and integrating capital adjustment cost into the model.

JEL-codes: D62 E24 E32 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113075

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