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Hours and Employment Over the Business Cycle: A Structural Analysis

Author

Listed:
  • Matteo Cacciatore

    (HEC Montreal)

  • Giuseppe Fiori

    (North Carolina State University)

  • Nora Traum

    (HEC Montreal)

Abstract

We conduct Bayesian inference on a quantitative business-cycle model with search-and-matching frictions and a neoclassical hours-supply decision. Likelihood maximization with both U.S. macroeconomic and labor data shows the model cannot cannot jointly reproduce the comovement of the labor margins with themselves and with macro data. A parsimonious set of features reconciles the model with the data: non-separable preferences with parametrized wealth effects and costly hours adjustment. The model offers a structural explanation for the observed time-varying comovement between the labor margins, being either positive or negative, across post-war U.S. recessions and recoveries. Moreover, the estimated model shows adjustment in the intensive margin contributes up to half the dynamics of total hours in these episodes, as intensive-margin adjustments increase employment losses during recessions and delay employment recoveries. (Copyright: Elsevier)

Suggested Citation

  • Matteo Cacciatore & Giuseppe Fiori & Nora Traum, 2020. "Hours and Employment Over the Business Cycle: A Structural Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 240-262, January.
  • Handle: RePEc:red:issued:18-263
    DOI: 10.1016/j.red.2019.07.001
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