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Mobility constraints, productivity trends, and extended crises

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  • Gatti, Domenico Delli
  • Gallegati, Mauro
  • Greenwald, Bruce C.
  • Russo, Alberto
  • Stiglitz, Joseph E.

Abstract

In this paper we propose an interpretation of the current Global Financial Crisis which emphasizes sectoral dislocation following localized technical change in the presence of barriers to labor mobility. This tale is reminiscent of a similar tale concerning the Great Depression. In the 30s technical change was localized in agriculture, where income fell because rising productivity could not be offset by a shrinking labor force due to the costs of moving out of agriculture for unemployed workers, inelastic demand for agricultural output meant that as output increased income declined. As individual incomes fell below the level necessary to finance the transition to manufacturing, excess labor became trapped in agriculture, reducing wages and exacerbating the rise in output. Shrinking incomes in agriculture reverberated on the other sectors, mainly manufacturing causing a large depression. Nowadays, it is manufacturing that plays the role of epicenter of technical change. Falling incomes in manufacturing yield a lack of demand for goods produced in the rest of the economy, namely the service sector. This may be the deep rooted cause of the long lasting slump and the painfully slow recovery.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 83 (2012)
Issue (Month): 3 ()
Pages: 375-393

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Handle: RePEc:eee:jeborg:v:83:y:2012:i:3:p:375-393

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Crisis; Sectoral imbalances; Productivity;

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References

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  1. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  2. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
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  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  5. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  6. Stiglitz,Joseph & Greenwald,Bruce, 2003. "Towards a New Paradigm in Monetary Economics," Cambridge Books, Cambridge University Press, number 9780521008051, October.
  7. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the Rich Save More?," NBER Working Papers 7906, National Bureau of Economic Research, Inc.
  8. Bruce Greenwald & Joseph E. Stiglitz, 2006. "Helping Infant Economies Grow: Foundations of Trade Policies for Developing Countries," American Economic Review, American Economic Association, vol. 96(2), pages 141-146, May.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  10. Thomas W. Bates & Kathleen M. Kahle & Rene M. Stulz, 2006. "Why Do U.S. Firms Hold So Much More Cash Than They Used To?," NBER Working Papers 12534, National Bureau of Economic Research, Inc.
  11. Swanson, J. A. & Williamson, S. H., 1972. "Estimates of national product and income for the United States economy, 1919-1941," Explorations in Economic History, Elsevier, vol. 10(1), pages 53-73.
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Cited by:
  1. Li, Xi Hao, 2013. "Standardization for Agent-based Modeling in Economics," MPRA Paper 47396, University Library of Munich, Germany.
  2. Russo, Alberto, 2012. "From the Neoliberal crisis to a new path of development," MPRA Paper 38004, University Library of Munich, Germany.
  3. Russo, Alberto, 2012. "Elements of novelty, known mechanisms, and the fundamental causes of the recent crisis," MPRA Paper 41088, University Library of Munich, Germany.
  4. Joseph E. Stiglitz, 2013. "Stable Growth in an Era of Crises; Learning from Economic Theory and History," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 1-39, January.
  5. Stiglitz, Joseph & Lin, Justin & Monga, Celestin & Patel, Ebrahim, 2013. "Industrial policy in the African context," Policy Research Working Paper Series 6633, The World Bank.

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