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Countercyclical Restructuring and Jobless Recoveries

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  • David Berger

    (Yale University)

Abstract

In the past three recessions, two major features of the business cycle have changed. First, employment now lags output growth, leading to jobless recoveries. Second, average labor productivity (ALP) has become acyclical or even countercyclical. This paper proposes a joint explanation for both facts. I develop a quantitative model in which firms streamline and restructure during recessions. The model captures the idea that firms grow "fat" during booms but then quickly "restructure" during recessions by laying off their unproductive workers. Firms then enter the recovery with a greater ability to meet expanding demand without hiring additional workers. This model explains 55% of the decline in the procyclicality of ALP observed in the data and generates a 4 quarters long jobless recovery after the Great Recession.

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  • David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:1179
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