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Testing for Keynesian Labor Demand

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

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
Date of revision:
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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