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The vanishing procyclicality of labor productivity
Galí, Jordi; van Rens, Thijs
Universitat Pompeu Fabra. Departament d'Economia i Empresa
We document three changes in postwar US macroeconomic dynamics: (i) theprocyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wagehas risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model withlabor market frictions, variable effort, and endogenous wage rigidities to illustratethe mechanisms underlying our explanation. We show that the reduction in frictionsmay also have contributed to the observed decline in output volatility.
Macroeconomics and International Economics
labor hoarding
labor market frictions
wage rigidities
effort choice.
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