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The Employment–Productivity Relationship with Employment Criteria

In: Aspects of Worker Well-Being

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  • Sumati Srinivas
  • Michael Sattinger

Abstract

This paper analyzes labor market responses to productivity shocks when firms set employment criteria on the basis of the likelihood of hiring high or low productivity workers. In response to a positive productivity shock, firms do not raise the criterion as much as the shock, increasing the proportion of low productivity workers among the employed. The observed average productivity may respond negligibly even if employment changes substantially. Interest rate fluctuations can yield an opposite relation between productivity and employment, explaining the weak empirical relationship.

Suggested Citation

  • Sumati Srinivas & Michael Sattinger, 2007. "The Employment–Productivity Relationship with Employment Criteria," Research in Labor Economics, in: Aspects of Worker Well-Being, pages 447-466, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-9121(06)26013-8
    DOI: 10.1016/S0147-9121(06)26013-8
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