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Inflexible Prices and Procyclical Productivity

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Author Info
Rotemberg, Julio J
Summers, Lawrence H

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Abstract

Robert E. Hall has shown that with perfect competition and price flexibility, total factor productivity, measured using labor's share whether in revenues or in costs, will be acyclical regardless of the level of labor hoarding. The authors show that if firms producing a homogeneous good under constant returns must pick their prices before demand is known, both measures of productivity become procyclical. The model implies the productivity should be more procyclical the more important is labor hoarding. Empirically, productivity is more procyclical in industries and in nations where labor hoarding appears more important. Copyright 1990, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 105 (1990)
Issue (Month): 4 (November)
Pages: 851-74
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Handle: RePEc:tpr:qjecon:v:105:y:1990:i:4:p:851-74

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