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Unemployment and the labor share

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  • Mangin, Sephorah
  • Sedláček, Petr

Abstract

The labor share fluctuates over the business cycle. To explain this behavior, we develop a novel model featuring direct competition between heterogeneous firms to hire workers. This simultaneously endogenizes both average match productivity and the division of output between workers and firms. In existing matches, wages partly reflect labor market conditions at the time of hiring. A positive TFP shock therefore reduces the aggregate labor share, making it counter-cyclical. However, greater competition and lower unemployment increase labor’s share among new firms. As more firms enter, the aggregate labor share rises and eventually overshoots its initial level, as in the data.

Suggested Citation

  • Mangin, Sephorah & Sedláček, Petr, 2018. "Unemployment and the labor share," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 41-59.
  • Handle: RePEc:eee:moneco:v:94:y:2018:i:c:p:41-59
    DOI: 10.1016/j.jmoneco.2017.10.001
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    References listed on IDEAS

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    Cited by:

    1. Mangin, Sephorah, 2017. "A theory of production, matching, and distribution," Journal of Economic Theory, Elsevier, vol. 172(C), pages 376-409.
    2. Aristotelis Boukouras, 2016. "Capitalist Spirit and the Markets: Why Income Inequality Matters," Discussion Papers in Economics 16/16, Division of Economics, School of Business, University of Leicester.
    3. Dongya Koh & Raül Santaeulàlia-Llopis, 2017. "Countercyclical Elasticity of Substitution," Working Papers 946, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    Labor share; Factor shares; Unemployment; Cohort effects; Heterogeneous firms;

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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