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Decomposition of Hours Based on Extensive and Intensive Margins of Labor

  • Yongsung Chang

    (University of Pennsylvania)

  • Noh-Sun Kwark

    (Dongguk University)

We decompose underlying disturbances in total hours into three kinds: disturbances that shift the steady-state level of hours, those that change the sectoral composition of employment in the long-run, and those that cause temporary movement of hours around the steady-state. Our identifying restriction exploits the distinctive nature of the two margins of labor: employment and hours per worker. According to the variance decompostion from a VAR based on Post-War U.S. monthly data, we find that disturbances which eventually shift the steady-state level of hours account for three-quarters of cyclical fluctuation in aggregate hours. This challenges the commonly used restriction of constant hours along the balanced growth path in the business cycle literature. Further, we do not find a significant role for sectoral reallocation shocks in the cyclical fluctuation of hours.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1416.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1416
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  16. Phelan, Christopher & Trejos, Alberto, 2000. "The aggregate effects of sectoral reallocations," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 249-268, April.
  17. Campbell, Jeffrey R. & Kuttner, Kenneth N., 1996. "Macroeconomic effects of employment reallocation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 87-116, June.
  18. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  19. Eric Swanson, 1999. "Models of sectoral reallocation," Finance and Economics Discussion Series 1999-03, Board of Governors of the Federal Reserve System (U.S.).
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  25. Bencivenga, Valerie R, 1992. "An Econometric Study of Hours and Output Variation with Preference Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 449-71, May.
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