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Employment and the Cyclical Cost of Worker Benefits

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  • Grace Weishi Gu

    (Unversity of California, Santa Cruz)

Abstract

Both aggregate and micro-level data show that the firm-paid quasi-fixed cost of an employee's benefits fluctuates with labor market conditions. It declines when the labor market deteriorates and rises when the labor market improves. This paper develops an RBC model to study the impact of this cyclical quasi-fixed labor cost on firms' employment decisions. I find that the cost increases employment volatility and delays employment adjustments when productivity shocks are small. The model reflects the sluggish employment recoveries of the post-1990 period, but not before that. It also generates data-matching volatility for employment and other business cycle variables. (Copyright: Elsevier)

Suggested Citation

  • Grace Weishi Gu, 2018. "Employment and the Cyclical Cost of Worker Benefits," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 96-120, April.
  • Handle: RePEc:red:issued:15-318
    DOI: 10.1016/j.red.2017.08.001
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    Cited by:

    1. Grace Weishi Gu & Eswar Prasad & Thomas Moehrle, 2020. "New Evidence on Cyclical Variation in Average Labor Costs in the United States," The Review of Economics and Statistics, MIT Press, vol. 102(5), pages 966-979, December.
    2. Grace Weishi Gu & Eswar Prasad, 2018. "New Evidence on Cyclical Variation in Labor Costs in the U.S," NBER Working Papers 24266, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Employment; Firm-paid quasi-fixed cost of employee benefits; DSGE; Business cycles;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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