Why Does Trend Growth Affect Equilibrium Employment? A New Explanation of an Old Puzzle
AbstractThat the employment rate appears to respond to changes in trend growth is an enduring macroeconomic puzzle. This paper shows that, in the presence of a return to experience, a slowdown in productivity growth raises reservation wages, thereby lowering aggregate employment. The paper develops new evidence that shows this mechanism is important for explaining the growth-employment puzzle. The combined effects of changes in aggregate wage growth and returns to experience account for all the increase from 1968 to 2006 in nonemployment among low-skilled men and for approximately half the increase in nonemployment among all men. (JEL E24, J24, J31)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 102 (2012)
Issue (Month): 4 (June)
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
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- Ricardo Manuel Santos, .
"Dynamic Effects of Labor Supply: a mechanism explaining cross-sectional differences in hours,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics.
- Ricardo Manuel Santos, 2013. "Code and data files for "Dynamic Effects of Labor Supply: a mechanism explaining cross-sectional differences in hours"," Computer Codes 10-28, Review of Economic Dynamics.
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