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Aggregate Implications of Labor Market Distortions: The Recession of 2008-9 and Beyond

  • Casey B. Mulligan

The aggregate neoclassical growth model - with a labor income tax or "labor market distortion" that began growing at the end of 2007 as its only impulse - produces time series for aggregate labor usage, consumption, investment, and real GDP that closely resemble actual U.S. time series. Of particular interest is the fact that the model - with no explicit financial market - has investment fall steeply during the recession not because of any distortions with the supply of capital, but merely because labor is falling and labor is complementary with capital in the production function. Through the lens of the model, the fact the real consumption fell significantly below trend during 2008 suggests that labor usage per capita could get somewhat lower than it was at the end of 2009, and is expected to remain below pre-recession levels even after the "recovery."

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15681.

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Date of creation: Jan 2010
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Handle: RePEc:nbr:nberwo:15681
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  1. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
  2. Robert J. Barro, 2003. "Determinants of Economic Growth in a Panel of Countries," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 231-274, November.
  3. Xavier Sala-i-Martín & Elsa V. Artadi, 2003. "Economic growth and investment in the Arab world," Economics Working Papers 683, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Marcus Scheiblecker & et al., 2003. "Austria's Economy in 2002: Another Year of Slow Growth," WIFO Monatsberichte (monthly reports), WIFO, vol. 76(4), pages 257-323, April.
  5. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, June.
  6. Casey Mulligan, 2009. "What Caused the Recession of 2008? Hints from Labor Productivity," NBER Working Papers 14729, National Bureau of Economic Research, Inc.
  7. McCleary, Rachel & Barro, Robert, 2003. "Religion and Economic Growth across Countries," Scholarly Articles 3708464, Harvard University Department of Economics.
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