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Technology-Labor and Fiscal Spending Crowding-in Puzzles: The Role of Interpersonal Comparison

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  • Klein, Mathias
  • Krause, Christopher

Abstract

Standard real business cycle models predict a rise in employment following a technology shock. In contrast, numerous empirical studies show that a technology shock leads to a decline in labor input. In this paper, we demonstrate that a flexible price model enriched with interpersonal comparison of consumption expenditures is able to generate a fall in employment in response to a technology shock. The negative labor response is robust to different values assigned to the inverse Frisch elastictiy of labor supply and integrating capital adjustment cost into the model.

Suggested Citation

  • Klein, Mathias & Krause, Christopher, 2015. "Technology-Labor and Fiscal Spending Crowding-in Puzzles: The Role of Interpersonal Comparison," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113075, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113075
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    References listed on IDEAS

    as
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    5. Mathias Klein & Christopher Krause, 2020. "Income Redistribution, Consumer Credit, and Keeping Up with the Riches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(8), pages 1937-1971, December.
    6. Samuel Bowles & Yongjin Park, 2005. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," Economic Journal, Royal Economic Society, vol. 115(507), pages 397-412, November.
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    9. Dedola, Luca & Neri, Stefano, 2007. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 512-549, March.
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    13. Mathias Klein & Christopher Krause, 2014. "Income Redistribution, Consumer Credit,and Keeping up with the Riches," Ruhr Economic Papers 0509, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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