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Hours and Employment Variation in Business Cycle Theory

  • Kydland, Finn E
  • Prescott, Edward C

Previous business cycle models have made the assumption that all the variation in the labor input is either due to changes in hours per worker or changes in number of workers, but not both. In this paper, both vary. We think this is a better model for estimating the contribution of Solow technology shocks to aggregate fluctuations. We find that about 70 percent of the variance of U.S. postwar cyclical fluctuations is induced by variations in the Solow technology parameter.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 1 (1991)
Issue (Month): 1 (January)
Pages: 63-81

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Handle: RePEc:spr:joecth:v:1:y:1991:i:1:p:63-81
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  1. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
  2. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  3. Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
  4. Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 55-136 National Bureau of Economic Research, Inc.
  5. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
  6. Gary D. Hansen, 1989. "Technical Progress and Aggregate Fluctuations," UCLA Economics Working Papers 546, UCLA Department of Economics.
  7. Cho, Jang-Ok & Cooley, Thomas F., 1994. "Employment and hours over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 18(2), pages 411-432, March.
  8. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  9. Gary D. Hansen & Thomas J. Sargent, 1987. "Straight Time and Overtime in Equilibrium," UCLA Economics Working Papers 455, UCLA Department of Economics.
  10. Kydland, Finn E. & Prescott, Edward C., 1988. "The workweek of capital and its cyclical implications," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 343-360.
  11. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  12. Lawrence J. Christiano & Martin Eichenbaum, 1988. "Is Theory Really Ahead of Measurement? Current Real Business Cycle Theories and Aggregate Labor Market Fluctuations," NBER Working Papers 2700, National Bureau of Economic Research, Inc.
  13. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
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