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Productivity and unemployment over the business cycle

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  • Barnichon, Regis

Abstract

The low correlation between cyclical unemployment and productivity over the post-war period hides a large sign switch in the mid-1980s: from significantly negative the correlation became significantly positive. Using a search model of unemployment with nominal rigidities and variable labor effort, I show that technology shocks can generate a positive unemployment-productivity correlation whereas non-technology shocks (i.e. aggregate demand shocks) tend to do the opposite. In this context, I identify two events that can quantitatively explain the increase in the correlation: (i) a sharp drop in the volatility of non-technology shocks in the mid-1980s, and (ii) a decline in the response of productivity to non-technology shocks, which from procyclical became acyclical in the last 25 years.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 8 (November)
Pages: 1013-1025

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Handle: RePEc:eee:moneco:v:57:y:2010:i:8:p:1013-1025

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Web page: http://www.elsevier.com/locate/inca/505566

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Cited by:
  1. Jeff E. Biddle, 2014. "Retrospectives: The Cyclical Behavior of Labor Productivity and the Emergence of the Labor Hoarding Concept," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 197-212, Spring.
  2. Jordi Galí & Frank Smets & Rafael Wouters, 2011. "Unemployment in an estimated new Keynesian model," Economics Working Papers 1266, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2011.
  3. Lee E. Ohanian & Andrea Raffo, 2011. "Aggregate Hours Worked in OECD Countries: New Measurement and Implications for Business Cycles," NBER Working Papers 17420, National Bureau of Economic Research, Inc.
  4. Jordi Galí, 2012. "Notes for a new guide to Keynes (I): Wages, aggregate demand, and employment," Economics Working Papers 1339, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2012.
  5. Jordi Galí, 2012. "Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment," NBER Working Papers 18651, National Bureau of Economic Research, Inc.
  6. Andrew Figura, 2011. "Have cyclical movements in the unemployment rate become more persistent?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-33, Board of Governors of the Federal Reserve System (U.S.).
  7. Jordi Galí, 2012. "Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment," Working Papers 662, Barcelona Graduate School of Economics.
  8. Michaillat, Pascal, 2011. "Fiscal Multipliers Over the Business Cycle," CEPR Discussion Papers 8610, C.E.P.R. Discussion Papers.
  9. Nucci, Francesco & Riggi, Marianna, 2013. "Performance pay and changes in U.S. labor market dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2796-2813.
  10. Mary C. Daly & John G. Fernald & Òscar Jordà & Fernanda Nechio, 2013. "Okun’s macroscope and the changing cyclicality of underlying margins of adjustment," Working Paper Series 2013-32, Federal Reserve Bank of San Francisco.
  11. Fabrice Collard & Jacob Wong, 2011. "A Dynamic Model of Occupational Mobility, Structural Unemployment, Average Labour Productivity and Wage Dispersion," 2011 Meeting Papers 821, Society for Economic Dynamics.
  12. Poilly, Céline & Wesselbaum, Dennis, 2014. "Evaluating labor market reforms: A normative analysis," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 156-170.
  13. Eric Sims & Michael Jason Pries, 2011. "Reallocation and the Changing Nature of Economic Fluctuations," 2011 Meeting Papers 1258, Society for Economic Dynamics.

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