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Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?

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  • Francois Gourio
  • Leena Rudanko

Abstract

Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new evidence on cyclical variation in selling effort to discipline the exercise.

Suggested Citation

  • Francois Gourio & Leena Rudanko, 2014. "Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?," NBER Working Papers 19900, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19900
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    References listed on IDEAS

    as
    1. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    2. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-297, January.
    3. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
    4. Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.
    5. Loukas Karabarbounis, 2014. "The Labor Wedge: MRS vs. MPN," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 206-223, April.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?
      by Christian Zimmermann in NEP-DGE blog on 2014-03-05 22:15:32

    Citations

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    Cited by:

    1. Leena Rudanko, 2017. "The Value of Loyal Customers," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 2(2), pages 11-17, April.
    2. Epstein, Brendan & Mukherjee, Rahul & Finkelstein Shapiro, Alan & Ramnath, Shanthi, 2020. "Trends in aggregate employment, hours worked per worker, and the long-run labor wedge," MPRA Paper 99289, University Library of Munich, Germany.
    3. Benjamin Bridgman, 2016. "Engines of Leisure," BEA Working Papers 0137, Bureau of Economic Analysis.
    4. Laurent Cavenaile & Pau Roldan-Blanco, 2021. "Advertising, Innovation, and Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 251-303, July.
    5. Roldan-Blanco, Pau & Gilbukh, Sonia, 2021. "Firm dynamics and pricing under customer capital accumulation," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 99-119.
    6. Mitra, Shalini, 2018. "Intangible Capital and the Rise in Wage and Hours Volatility," MPRA Paper 89697, University Library of Munich, Germany.
    7. Gallen, Trevor S., 2018. "Is the labor wedge due to rigid wages? Evidence from the self-employed," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 184-198.
    8. Macnamara Patrick, 2016. "Understanding entry and exit: a business cycle accounting approach," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 47-91, January.
    9. Jose Ignacio Lopez & Virginia Olivella, 2018. "The importance of intangible capital for the transmission of financial shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 223-238, October.
    10. Munkacsi, Zsuzsa, 2015. "Fiscal austerity, unemployment and family firms," Discussion Papers 06/2015, Deutsche Bundesbank.
    11. Pau Roldan & Sophia Gilbukh, 2017. "Firm Dynamics and Pricing under Customer Capital Accumulation," 2017 Meeting Papers 1235, Society for Economic Dynamics.
    12. Yang, Shenglang & Shi, Xunpeng, 2018. "Intangible capital and sectoral energy intensity: Evidence from 40 economies between 1995 and 2007," Energy Policy, Elsevier, vol. 122(C), pages 118-128.
    13. Kilic, Mete & Yang, Louis & Zhang, Miao Ben, 2022. "The cross-section of investment and profitability: Implications for asset pricing," Journal of Financial Economics, Elsevier, vol. 145(3), pages 706-724.
    14. Atesagaoglu, Orhan Erem & Elgin, Ceyhun, 2015. "Cyclicality of labor wedge and informal sector," Economics Letters, Elsevier, vol. 136(C), pages 141-146.
    15. Brinca, Pedro & Costa-Filho, João & Loria, Francesca, 2020. "Business Cycle Accounting: what have we learned so far?," MPRA Paper 100180, University Library of Munich, Germany.
    16. Morlacco, Monica & Zeke, David, 2021. "Monetary policy, customer capital, and market power," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 116-134.
    17. Mitra, Shalini, 2019. "Intangible capital and the rise in wage and hours volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 70-85.
    18. Kouvavas, Omiros & Osbat, Chiara & Reinelt, Timo & Vansteenkiste, Isabel, 2021. "Markups and inflation cyclicality in the euro area," Working Paper Series 2617, European Central Bank.

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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