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Labor Hoarding, Inflexible Prices, and Procyclical Productivity

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  • Julio J. Rotemberg
  • Lawrence H. Summers

Abstract

Hall has pointed out that, when there is perfect competition and price flexibility, labor hoarding alone will not induce the Solow residual measured using labor's share in revenues to be procyclical. We show that, even with perfect competition, a small amount of price rigidity - we assume firms must set price slightly before the level of demand becomes known - makes the extent of procyclical productivity depend mainly on the extent of labor hoarding. We show that indeed, whether productivity is measured via the Solow method using labor's share in revenues or using other methods, it tends to be more procyclical in industries and in nations where labor hoarding is more important

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2591.

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Date of creation: May 1988
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Handle: RePEc:nbr:nberwo:2591

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Cited by:
  1. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  2. Galeotti, Marzio & Maccini, Louis J. & Schiantarelli, Fabio, 2002. "Inventories, Employment and Hours," IZA Discussion Papers 458, Institute for the Study of Labor (IZA).
  3. Harrison, Ann E., 1990. "Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire," Policy Research Working Paper Series 451, The World Bank.
  4. J. Bradford DeLong & Robert J. Waldmann, 1997. "Interpreting procyclical productivity: evidence from a cross-nation cross-industry panel," Economic Review, Federal Reserve Bank of San Francisco, pages 33-52.
  5. Victor Zarnowitz, 1989. "Cost and Price Movements in Business Cycle Theories and Experience: Hypotheses of Sticky Wages and Prices (SEE ALSO WP3132-send out together)," NBER Working Papers 3131, National Bureau of Economic Research, Inc.
  6. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-59, June.
  7. J. Bradford De Long, 1990. "Interpreting Procyclical Productivity Movements: Evidence from a Cross-Nation Cross-Industry Panel," J. Bradford De Long's Working Papers _136, University of California at Berkeley, Economics Department.

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