Publication
Aug 2010
This paper documents three changes in postwar US macroeconomic dynamics: the procyclicality of labor productivity has vanished, the relative volatility of employment has risen, and the relative (and absolute) volatility of the real wage has 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 with labor market frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in frictions may also have contributed to the observed decline in output volatility.
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English (PDF, 51 pages, 717 KB) |
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Author | Jordi Galí, Thijs van Rens |
Series | Kiel Institute Working Papers |
Issue | 1641 |
Publisher | Kiel Institute for the World Economy |
Copyright | © 2010 Kiel Institute for the World Economy |