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Aggregate Employment Fluctuations and Agricultural Share

  • Jose Maria Da Rocha
  • Diego Restuccia

Differences in employment volatility and the correlation of employment with output across countries are often cited as examples of the limitation of standard real business cycle (RBC) theory to reproduce the observed labor market facts. These observations have lead researchers to argue for the necessity of Non-Walrasian features to reflect the labor institutions in European countries. In this paper, we show that the same labor market evidence is observed in regional economies with the same labor market institutions. We conjecture that differences in agricultural activity can generate the observed differences in labor market behavior. We show that a standard two-sector RBC model with agriculture and non-agriculture can account for the observed labor market facts. In particular, as the size of agricultural activity increases, aggregate employment volatility and the correlation between aggregate employment and output decrease. Moreover, contrary to the Non-Walrasian approach to business cycles, agricultural activity can account for the correlation between aggregate employment and output as reported by Danthine and Donaldson (1993) for Europe and the U.S.

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File URL: https://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-DIEGOR-02-02.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number diegor-02-02.

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Length: 28 pages
Date of creation: 11 Oct 2002
Date of revision:
Handle: RePEc:tor:tecipa:diegor-02-02
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  1. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  2. Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers 681, C.E.P.R. Discussion Papers.
  3. Correia, Isabel & Neves, Joao C & Rebelo, Sérgio, 1994. "Business Cycles in a Small Open Economy," CEPR Discussion Papers 996, C.E.P.R. Discussion Papers.
  4. Juan J. Dolado & Miguel Sebastián & Javier Vallés, 1993. "Cyclical Patterns of the Spanish Economy," Banco de Espa�a Working Papers 9324, Banco de Espa�a.
  5. Kollintzas, Tryphon & Vassilatos, Vanghelis, 1996. "A Stochastic Dynamic General Equilibrium Model for Greece," CEPR Discussion Papers 1518, C.E.P.R. Discussion Papers.
  6. Pierre Danthine, Jean & Donaldson, John B., 1993. "Methodological and empirical issues in real business cycle theory," European Economic Review, Elsevier, vol. 37(1), pages 1-35, January.
  7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  8. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  9. Luis A. Puch & Omar Licandro, 1997. "Are there any special features in the Spanish business cycle?," Investigaciones Economicas, Fundación SEPI, vol. 21(2), pages 361-394, May.
  10. McGrattan, Ellen R, 1990. "Solving the Stochastic Growth Model by Linear-Quadratic Approximation," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 41-44, January.
  11. Jose Maria Da Rocha & Diego Restuccia, 2002. "The Role of Agriculture in Aggregate Business Cycle Fluctuations," Working Papers diegor-02-04, University of Toronto, Department of Economics.
  12. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
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