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Pricing Behavior and the Response of Hours to Productivity Shocks

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  • DOMENICO J. MARCHETTI
  • FRANCESCO NUCCI

Abstract

Recent contributions have suggested that technology shocks have a negative impact on hours, contrary to the prediction of standard flexible-price models of the business cycle. Some authors have interpreted this finding as evidence in favor of sticky-price models, while others have either extended flexible-price models or disputed the empirical finding itself. In this paper, we estimate a variety of alternative total factor productivity measures for a representative sample of Italian manufacturing firms and on average find a negative effect of productivity shocks on hours growth. More interestingly, using the reported frequency of price reviews, we show that the contractionary effect is stronger for firms with stickier prices and weaker or not significant for firms with more flexible prices. Price stickiness remains a crucial factor in shaping the response of hours after controlling for product storability or market power. Copyright 2007 The Ohio State University.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): 7 (October)
Pages: 1587-1611

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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:7:p:1587-1611

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Cited by:
  1. Catherine Fuss & Ladislav Wintr, 2009. "Rigid labour compensation and flexible employment ? Firm-level evidence with regard to productivity for Belgium," Working Paper Research 159, National Bank of Belgium.
  2. KWON Hyeog Ug & Jun-Hyung KO, 2013. "Do Technology Shocks Lower Hours Worked? Evidence from the Japan Industrial Productivity Database," Discussion papers 13018, Research Institute of Economy, Trade and Industry (RIETI).
  3. Piccirilli, Giulio, 2009. "Contingent worksharing," Research in Economics, Elsevier, vol. 63(2), pages 135-143, June.
  4. Fabiano Schivardi & Andrea Pozzi, 2012. "What drives firm growth? The role of demand and TFP shocks," 2012 Meeting Papers 810, Society for Economic Dynamics.

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