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Decomposition of hours based on extensive and intensive margins of labor

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  • Chang, Yongsung
  • Kwark, Noh-Sun
Abstract
We decompose underlying disturbances in total hours into three kinds: disturbances that shift the steady-state level of hours, those that change the sectoral composition of employment in the long-run, and those that cause temporary movement of hours around the steady-state. Our identifying restriction exploits the distinctive nature of the two margins of labor: employment and hours per worker. According to the variance decompostion from a VAR based on Post-War U.S. monthly data, we find that disturbances which eventually shift the steady-state level of hours account for three-quarters of cyclical fluctuation in aggregate hours. This challenges the commonly used restriction of constant hours along the balanced growth path in the business cycle literature. Further, we do not find a significant role for sectoral reallocation shocks in the cyclical fluctuation of hours.
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  • Chang, Yongsung & Kwark, Noh-Sun, 2001. "Decomposition of hours based on extensive and intensive margins of labor," Economics Letters, Elsevier, vol. 72(3), pages 361-367, September.
    • Handle: RePEc:eee:ecolet:v:72:y:2001:i:3:p:361-367
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    4. Larsen, Jens & Katharine Neiss & Fergal Shortall, 2002. "Factor Utilisation and Productivity Estimates for the United Kingdom," Royal Economic Society Annual Conference 2002 120, Royal Economic Society.

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