Labor Hoarding and the Business Cycle
This paper investigates the sensitivity of Solow residual based measures of technology shocks to labor-hoarding behavior. Using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption, the authors estimate the fraction of the variability of the Solow residual that is due to technology shocks. Their results support the view that a significant proportion of movements in the Solow residual are artifa cts of labor-hoarding behavior. Specifically, the authors estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models. Copyright 1993 by University of Chicago Press.
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