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The Employment-Productivity Relation with Employment Criteria

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  • Michael Sattinger
  • Sumati Srinivas

Abstract

This paper analyzes labor market responses to productivity shocks when firms set employment criteria on the basis of the likelihood of hiring high productivity or low productivity workers. In response to a positive productivity shock, firms do not raise the criterion as much as the shock, increasing the proportion of low productivity workers among the employed. The observed average productivity may respond negligibly even if employment changes substantially in response to the shock. Interest rate fluctuations can yield an opposite relation between productivity and employment, explaining the weak empirical relationship between the variables.

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File URL: http://www.albany.edu/economics/research/workingp/2003/EmploymentCriteria.pdf
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 03-07.

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Date of creation: 2003
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Handle: RePEc:nya:albaec:03-07

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
Phone: (518) 442-4735
Fax: (518) 442-4736

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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  1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
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  7. Schlicht, Ekkehart, 1981. "Training Costs and Wage Differentials in the Theory of Job Competition," Munich Reprints in Economics 1347, University of Munich, Department of Economics.
  8. Gary D. Hansen & Randall Wright, 1992. "The labor market in real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-12.
  9. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  10. Cho, Jang-Ok, 1995. "Ex post heterogeneity and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 19(3), pages 533-551, April.
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  12. Lockwood, Ben, 1991. "Information Externalities in the Labour Market and the Duration of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 733-53, July.
  13. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245.
  14. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
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