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The Vanishing Procyclicality of Labor Productivity

Author

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  • Jordi Galí
  • Thijs van Rens
Abstract
We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity vanished, (ii) the relative volatility of employment rose, and (iii) the relative (and absolute) volatility of the real wage rose. We propose an explanation for all three changes that is based on a common source: the decline in labor market turnover, which reduced hiring frictions. We develop a simple model with hiring frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the decline in turnover may also have contributed to the observed decline in output volatility.

Suggested Citation

  • Jordi Galí & Thijs van Rens, 2014. "The Vanishing Procyclicality of Labor Productivity," Working Papers 489, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:489
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    More about this item

    Keywords

    labor hoarding; labor market turnover; hiring frictions; Wage rigidities; effort choice;
    All these keywords.

    JEL classification:

    • 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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