The Vanishing Procyclicality of Labour Productivity

This paper proposes a modi®ed version of the standard search and matching model of the labour market that combines a shirking mechanism with the assumption that ®rms post wages. We argue that a small shirking e ect will generate a low rate of pro®t and lead to a low rate of vacancy creation, implying that the vacancy ®lling rate is high. Through this mechanism we show that our model delivers a close match of the simulated volatilities, correlations and autocorrelations of unemployment, vacancies, labour market tightness and the job ®nding rate with values observed in US data. In doing so, it outperforms prominent alternative models.

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“…Real unemployment bene®ts are set as b = 0.4. This is the same value as Shimer (2005) 11 . The disutility of labour is assumed to be c = 0.43.…”

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confidence: 64%

Search, shirking and labor market volatility

Martin

Wang

2020

Journal of Macroeconomics

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“…Our rationale is that these models have frictions and shocks that are embedded in a many contemporary DSGE models, and therefore, provide a useful reference point. For labor productivity and labor input dynamics, we consider simulated data from the models in Galí and van Rens () and Garin, Pries, and Sims (), respectively. Our rationale is that since these models successfully explain the decline in the procyclicality of labor productivity after the mid‐1980s, they provide a natural benchmark to determine their intrinsic lead‐lag properties relative to the stylized facts reported above.…”

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confidence: 99%

The Shifts in Lead‐lag Properties of the U.S. Business Cycle

Brault

Khan

2019

Economic Inquiry

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We document shifts in the lead‐lag properties of the U.S. business cycle since the mid‐1980s. Specifically, (1) the well‐known inverted leading indicator property of real interest rates has completely vanished; (2) labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle; and (3) the unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross‐correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement. Determining the underlying sources of these shifts in the lead‐lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research. (JEL E24, E32, E43)

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“…We choose the time period 1982–2012, as Gali and van Rens () claim that during this time, labor productivity became less procyclical, opening the door for other mechanisms to be explored. Jermann and Quadrini () use a similar time period in their analysis of financial shocks and the macroeconomy.…”

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confidence: 99%

Financial Risk and Unemployment

Eckstein

Setty

Weiss

2018

Int Economic Review

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There is a strong correlation between corporate interest rates, their spreads relative to Treasuries, and the unemployment rate. We model how corporate interest rates affect equilibrium unemployment and vacancies, in a Diamond-Mortesen-Pissarides search and matching model. Our simple model permits the exploration of U.S. business cycle statistics through the lens of financial shocks. We calibrate the model using U.S. data without targeting business cycle statistics. Volatility in the corporate interest rate can explain a quantitatively meaningful portion of the labor market. Data on corporate firms support the hypothesis that firms facing more volatile financial conditions have more volatile employment. * Manuscript . 2 Baa is a credit rating of corporate default risk. For the U.S. Treasury, we use the five-year Constant Maturity Rate. We frequently refer to the corporate interest rate as the interest rate and to the corporate interest rate spread relative to the five-year Treasury interest rate as the spread. We always use real interest rates under a variety of definitions of inflation. The interest rate spread is unaffected by inflation. 3 We choose the time period 1982-2012, as Gali and van Rens (2014) claim that during this time, labor productivity became less procyclical, opening the door for other mechanisms to be explored. Jermann and Quadrini (2012) use a similar time period in their analysis of financial shocks and the macroeconomy. We include both lagged and contemporaneous values here for completeness. During the rest of the article, unless otherwise specified, we use only contemporaneous values. 475 C (2018) by the

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The Vanishing Procyclicality of Labour Productivity

Cited by 60 publications

References 54 publications

Search, shirking and labor market volatility

Search, shirking and labor market volatility

The Shifts in Lead‐lag Properties of the U.S. Business Cycle

Financial Risk and Unemployment

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