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Testing for Keynesian Labor Demand

In: NBER Macroeconomics Annual 2012, Volume 27

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  • Mark Bils
  • Peter J. Klenow
  • Benjamin A. Malin

Abstract

According to the textbook Keynesian model, short-run demand for labor is sensitive to the demand for goods. In this view, sellers deviate from setting the marginal product of labor proportional to the real wage, instead enduring or choosing lower price markups when demand for goods is high. We test this prediction across U.S. industries in the two decades up through the Great Recession. To identify movements in goods demand, we exploit how durability varies across 70 categories of consumption and investment. We also take into account the flexibility of prices and capital-intensity of production across goods. We find evidence in support of Keynesian Labor Demand.

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This chapter was published in:

  • Daron Acemoglu & Jonathan Parker & Michael Woodford, 2013. "NBER Macroeconomics Annual 2012, Volume 27," NBER Books, National Bureau of Economic Research, Inc, number acem12-2, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12756.

    Handle: RePEc:nbr:nberch:12756

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    1. Virgiliu Midrigan & Oleksiy Kryvtsov, 2008. "Inventories, Markups, and Real Rigidities in Menu Cost Models," 2008 Meeting Papers 487, Society for Economic Dynamics.
    2. Emi Nakamura & J?n Steinsson, 2014. "Fiscal Stimulus in a Monetary Union: Evidence from US Regions," American Economic Review, American Economic Association, American Economic Association, vol. 104(3), pages 753-92, March.
    3. Erceg, Christopher J. & Henderson, Dale W. & Levin, Andrew T., 2000. "Optimal monetary policy with staggered wage and price contracts," Journal of Monetary Economics, Elsevier, Elsevier, vol. 46(2), pages 281-313, October.
    4. Mikhail Golosov & Robert E. Lucas Jr., 2007. "Menu Costs and Phillips Curves," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 171-199.
    5. Mark Bils & Peter J. Klenow, 2002. "Some Evidence on the Importance of Sticky Prices," NBER Working Papers 9069, National Bureau of Economic Research, Inc.
    6. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
    7. James Feyrer & Bruce Sacerdote, 2011. "Did the Stimulus Stimulate? Real Time Estimates of the Effects of the American Recovery and Reinvestment Act," NBER Working Papers 16759, National Bureau of Economic Research, Inc.
    8. Robert B. Barsky & Christopher L. House & Miles S. Kimball, 2007. "Sticky-Price Models and Durable Goods," American Economic Review, American Economic Association, American Economic Association, vol. 97(3), pages 984-998, June.
    9. Yuriy Gorodnichenko & Matthew Shapiro, 2011. "Using the Survey of Plant Capacity to Measure Capital Utilization," Working Papers 11-19, Center for Economic Studies, U.S. Census Bureau.
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    13. Christopher J. Nekarda & Valerie A. Ramey, 2010. "Industry evidence on the effects of government spending," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2010-28, Board of Governors of the Federal Reserve System (U.S.).
    14. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
    15. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
    16. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, Elsevier, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284 Elsevier.
    17. Chang, Yongsung & Hornstein, Andreas & Sarte, Pierre-Daniel, 2009. "On the employment effects of productivity shocks: The role of inventories, demand elasticity, and sticky prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(3), pages 328-343, April.
    18. Shea, John, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 1-32, February.
    19. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(4), pages 1415-1464, November.
    20. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
    21. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
    22. Casey B. Mulligan, 2010. "Does Labor Supply Matter During a Recession? Evidence from the Seasonal Cycle," NBER Working Papers 16357, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Mark Bils & Yongsung Chang & Sun-Bin Kim, 2014. "How Sticky Wages In Existing Jobs Can Affect Hiring," RCER Working Papers 579, University of Rochester - Center for Economic Research (RCER).
    2. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
    3. Di Pace, Federico & Hertweck, Matthias S., 2012. "Labour Market Frictions, Monetary Policy, and Durable Goods," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62052, Verein für Socialpolitik / German Economic Association.
    4. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers, Society for Economic Dynamics 1216, Society for Economic Dynamics.

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