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Labor effort over the business cycle

Author

Listed:
  • Domenico J. Marchetti

    (Banca d'Italia)

  • Francesco Nucci

    (Universit� di Roma "La Sapienza")

Abstract

Unobservable labor utilization is recognized as a crucial feature of economic fluctuations. Yet very little is known on the behavior of work effort over the business cycle. By using firm-level panel data drawn from two high-quality sources, we obtain a microeconomic estimate of variable labor effort from a dynamic cost minimization set-up. We argue that, contrary to common assumptions, the relationship between effort and hours is not monotonic. During a recovery, if a critical level of hours per capita is reached (say, because of labor market rigidities), every additional hour is worked with decreasing effort, due to physical fatigue. We provide supporting evidence by estimating the structural parameters of a Taylor approximation of the effort function. Corroborating evidence has been obtained by estimating the elasticity of effort with respect to hours at different business cycle conditions.

Suggested Citation

  • Domenico J. Marchetti & Francesco Nucci, 2001. "Labor effort over the business cycle," Temi di discussione (Economic working papers) 424, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_424_01
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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2001/2001-0424/tema_424_01.pdf
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    References listed on IDEAS

    as
    1. Grande, Giuseppe & Ventura, Luigi, 2002. "Labor income and risky assets under market incompleteness: Evidence from Italian data," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 597-620, March.
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    Cited by:

    1. Altissimo, Filippo & Gaiotti, Eugenio & Locarno, Alberto, 2005. "Is money informative? Evidence from a large model used for policy analysis," Economic Modelling, Elsevier, vol. 22(2), pages 285-304, March.
    2. Eden,Maya, 2016. "The week," Policy Research Working Paper Series 7598, The World Bank.
    3. Dragone, Davide, 2009. "I am getting tired: Effort and fatigue in intertemporal decision-making," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 552-562, August.
    4. Marchetti, Domenico J. & Nucci, Francesco, 2005. "Price stickiness and the contractionary effect of technology shocks," European Economic Review, Elsevier, vol. 49(5), pages 1137-1163, July.
    5. Kolesnikova, Irina, 2010. "State Aid for Industrial Enterprises in Belarus: Remedy or Poison?," MPRA Paper 22403, University Library of Munich, Germany.

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    More about this item

    Keywords

    labor effort; factor hoarding; business cycles;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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