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Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?

  • Fran?ois Gourio
  • Leena Rudanko

Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new evidence on cyclical variation in selling effort to discipline the exercise.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 5 (May)
Pages: 183-88

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:5:p:183-88
Note: DOI: 10.1257/aer.104.5.183
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  1. Francois Gourio & Leena Rudanko, 2011. "Customer Capital," NBER Working Papers 17191, National Bureau of Economic Research, Inc.
  2. Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.
  3. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages S223-50, January.
  4. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-97, January.
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