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The Vanishing Procyclicality of Labor Productivity

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  • Jordi Galí
  • Thijs van Rens

Abstract

We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model with search frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in search frictions may also have contributed to the observed decline in output volatility.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 489.

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Date of creation: Jul 2010
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Handle: RePEc:bge:wpaper:489

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  1. The Vanishing Procyclicality of Labor Productivity
    by Christian Zimmermann in NEP-DGE blog on 2010-08-11 02:57:17
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