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What Does It Take to Explain Procyclical Productivity?

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Author Info
Yi Wen (Cornell University)

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Abstract

Labor productivity comoves strongly with output, leads output and employment, and is only weakly correlated with employment. Procyclical productivity is observed in virtually all countries and industries, and it is observed even in periods of fluctuations due to pure demand shocks, such as during the Great Depression and the second World War. This paper shows that a standard RBC model driven by demand shocks alone is able to explain procyclical productivity without the need to resort to technology shocks or increasing returns to scale. The key element is labor hoarding due to adjustment cost of labor. It is also shown that the observed cross-country differences in productivity cycles can be rationalized by a single parameter alone - the size of the adjustment cost of labor.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1180-1180
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Handle: RePEc:bep:maccon:v:4:y:2004:i:1:p:1180-1180

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Related research
Keywords: PRODUCTIVITY DEMAND SHOCKS REAL-BUSINESS-CYCLE LABOR HOARDING CAPACITY UTILIZATION ADJUSTMENT COST

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Find related papers by JEL classification:
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Wen, Yi, 2003. "On the Optimal Volume of Labor Hoarding," Working Papers 03-14, Cornell University, Center for Analytic Economics. [Downloadable!]
  2. Aguiar-Conraria, Luis & Wen, Yi, 2005. "Understanding the Impact of Oil Shocks," Working Papers 05-01, Cornell University, Center for Analytic Economics. [Downloadable!]
    Other versions:
  3. Wang, Peng-fei & Wen, Yi, 2004. "Another Look at Sticky Prices and Output Persistence," Working Papers 04-19, Cornell University, Center for Analytic Economics. [Downloadable!]
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