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Testing for Keynesian Labor Demand

Author Info

  • Mark Bils
  • Peter J. Klenow
  • Benjamin A. Malin

Abstract

According to the textbook Keynesian model, short-run demand for labor is sensitive to the demand for goods. In this view, sellers deviate from setting the marginal product of labor proportional to the real wage, instead enduring or choosing lower price markups when demand for goods is high. We test this prediction across U.S. industries in the two decades up through the Great Recession. To identify movements in goods demand, we exploit how durability varies across 70 categories of consumption and investment. We also take into account the flexibility of prices and capital-intensity of production across goods. We find evidence in support of Keynesian Labor Demand.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18149.

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Date of creation: Jun 2012
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Publication status: published as Mark Bils & Peter J. Klenow & Benjamin A. Malin, 2013. "Testing for Keynesian Labor Demand," NBER Macroeconomics Annual, University of Chicago Press, vol. 27(1), pages 311 - 349.
Handle: RePEc:nbr:nberwo:18149
Note: EFG ME
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Find related papers by JEL classification:
  • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
  • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
  • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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Cited by:

  1. Yongsung Chang & Sun-Bin Kim & Mark Bils, 2013. "How Sticky Wages in Existing Jobs can affect Hiring," 2013 Meeting Papers 1162, Society for Economic Dynamics.
  2. Di Pace, Federico & Hertweck, Matthias S., 2012. "Labour Market Frictions, Monetary Policy, and Durable Goods," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62052, Verein für Socialpolitik / German Economic Association.
  3. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
  4. Opp, Marcus M. & Parlour, Christine A. & Walden, Johan, 2014. "Markup cycles, dynamic misallocation, and amplification," Journal of Economic Theory, Elsevier, vol. 154(C), pages 126-161.
  5. Emmanuel Saez & Pascal Michaillat, 2013. "A Theory of Aggregate Supply and Aggregate Demand as Functions of Market Tightness with Prices as Parameters," 2013 Meeting Papers 1216, Society for Economic Dynamics.

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