AbstractOne of the productive activities engaging the work force is reorganizing. When factors of production are better matched, productivity is higher. The probabilistic matching model of Diamond, Mortensen, and others provides a way to make the idea of reorganization precise. Because the flow of organizational effort generates benefits lasting well into the future, it is appropriate to think of organizational capital. Unemployment-job seeking-is one of the inputs to organization. The flow of organizational effort represented by unemployment is analogous to the flow of physical investment. When an adverse technology shock causes job destruction, the economy substitutes the formation of new organizational capital for the flow of output. An increase in the interest rate can cause intertemporal substitution toward lower job destruction and less reorganization, but this effect may not come into play for a brief unexpected increase, and may be overwhelmed by intertemporal substitution in physical capital.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7181.
Date of creation: Jun 1999
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Other versions of this item:
- Hall, Robert E., 2000. "Reorganization," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 1-22, June.
- NEP-ALL-1999-07-28 (All new papers)
- NEP-LAB-1999-07-28 (Labour Economics)
- NEP-MIC-1999-07-28 (Microeconomics)
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