The Vanishing Procyclicality of Labor Productivity. by Jordi Galí and Thijs van Rens
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1 The Vanishing Procyclicality of Labor Productivity by Jordi Galí and Thijs van Rens No August 2010
2 Kiel Institute for the World Economy, Düsternbrooker Weg 120, Kiel, Germany Kiel Working Paper No August 2010 The Vanishing Procyclicality of Labor Productivity Jordi Galí and Thijs van Rens Abstract: We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) 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. Keywords: labor hoarding, labor market frictions, wage rigidities, effort choice JEL classification: E24, E32 CREI, Universitat Pompeu Fabra & Barcelona GSE s: jgali@crei.cat tvanrens@crei.cat The responsibility for the contents of the working papers rests with the author, not the Institute. Since working papers are of a preliminary nature, it may be useful to contact the author of a particular working paper about results or caveats before referring to, or quoting, a paper. Any comments on working papers should be sent directly to the author. Coverphoto: uni_com on photocase.com
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42 Labor productivity (bandpass filter) Correl prod with output (blue) and hours (red), cntrd 6-yr rolling window, bp
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45 Correlation with Output Correlation with Empl. Correlation with Hours Pre-84 Post-84 Change Pre-84 Post-84 Change Pre-84 Post-84 Change BP [0.06] [0.07] [0.09] [0.09] [0.07] [0.12] [0.09] [0.07] [0.11] HP [0.05] [0.09] [0.10] [0.08] [0.06] [0.10] [0.08] [0.07] [0.10] 4D [0.05] [0.09] [0.10] [0.08] [0.08] [0.11] [0.07] [0.08] [0.11] BP [0.07] [0.07] [0.10] [0.13] [0.08] [0.15] [0.12] [0.08] [0.15] HP [0.06] [0.09] [0.11] [0.10] [0.07] [0.12] [0.10] [0.07] [0.12] 4D [0.07] [0.09] [0.12] [0.10] [0.08] [0.13] [0.10] [0.09] [0.13] BP [0.05] [0.09] [0.11] [0.09] [0.11] [0.15] [0.08] [0.11] [0.13] HP [0.08] [0.14] [0.17] [0.13] [0.08] [0.15] [0.12] [0.09] [0.15] 4D [0.11] [0.11] [0.16] [0.14] [0.14] [0.20] [0.14] [0.14] [0.20] Correlation with Output Correlation with Empl. Correlation with Hours Pre-84 Post-84 Change Pre-84 Post-84 Change Pre-84 Post-84 Change BP [0.04] [0.05] [0.06] [0.08] [0.10] [0.13] [0.07] [0.10] [0.12] HP [0.03] [0.08] [0.09] [0.07] [0.09] [0.11] [0.07] [0.10] [0.12] 4D [0.03] [0.09] [0.09] [0.08] [0.11] [0.14] [0.07] [0.12] [0.14] BP [0.05] [0.05] [0.07] [0.11] [0.10] [0.15] [0.10] [0.10] [0.14] HP [0.04] [0.08] [0.09] [0.09] [0.09] [0.13] [0.08] [0.11] [0.14] 4D [0.04] [0.09] [0.10] [0.10] [0.12] [0.15] [0.09] [0.12] [0.15] BP [0.03] [0.05] [0.06] [0.07] [0.16] [0.18] [0.06] [0.15] [0.16] HP [0.06] [0.13] [0.15] [0.11] [0.12] [0.16] [0.10] [0.15] [0.17] 4D [0.08] [0.12] [0.14] [0.13] [0.19] [0.23] [0.12] [0.19] [0.23]
46 Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.08] [0.05] [0.04] [0.03] [0.05] [0.09] HP [0.08] [0.07] [0.06] [0.03] [0.06] [0.12] 4D [0.13] [0.12] [0.06] [0.03] [0.08] [0.15] BP [0.13] [0.07] [0.06] [0.04] [0.06] [0.11] HP [0.15] [0.11] [0.07] [0.05] [0.10] [0.17] 4D [0.20] [0.13] [0.06] [0.06] [0.12] [0.20] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.09] [0.06] [0.04] [0.03] [0.05] [0.08] HP [0.10] [0.08] [0.05] [0.03] [0.07] [0.10] 4D [0.15] [0.13] [0.06] [0.04] [0.09] [0.13] BP [0.15] [0.09] [0.06] [0.03] [0.07] [0.10] HP [0.19] [0.13] [0.08] [0.04] [0.11] [0.15] 4D [0.27] [0.15] [0.07] [0.06] [0.14] [0.20] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.08] [0.04] [0.04] [0.03] [0.04] [0.07] HP [0.09] [0.07] [0.05] [0.03] [0.05] [0.09] 4D [0.14] [0.10] [0.05] [0.03] [0.07] [0.11] BP [0.11] [0.06] [0.06] [0.03] [0.06] [0.11] HP [0.15] [0.10] [0.07] [0.03] [0.09] [0.15] 4D [0.20] [0.11] [0.06] [0.05] [0.11] [0.19]
47 Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.05] [0.06] [0.12] [0.02] [0.07] [0.31] HP [0.06] [0.06] [0.11] [0.03] [0.08] [0.29] 4D [0.12] [0.11] [0.09] [0.04] [0.12] [0.32] BP [0.07] [0.06] [0.16] [0.02] [0.08] [0.35] HP [0.06] [0.07] [0.14] [0.03] [0.08] [0.37] 4D [0.10] [0.12] [0.11] [0.03] [0.13] [0.38] BP [0.07] [0.08] [0.24] [0.02] [0.13] [0.67] HP [0.08] [0.09] [0.18] [0.03] [0.10] [0.60] 4D [0.11] [0.17] [0.15] [0.04] [0.21] [0.68] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.05] [0.05] [0.10] [0.02] [0.07] [0.24] HP [0.05] [0.08] [0.11] [0.02] [0.09] [0.30] 4D [0.10] [0.10] [0.07] [0.03] [0.12] [0.26] BP [0.08] [0.05] [0.12] [0.02] [0.07] [0.27] HP [0.08] [0.08] [0.14] [0.03] [0.09] [0.35] 4D [0.11] [0.11] [0.09] [0.04] [0.12] [0.30] BP [0.10] [0.07] [0.20] [0.03] [0.11] [0.52] HP [0.08] [0.13] [0.20] [0.03] [0.14] [0.62] 4D [0.14] [0.17] [0.14] [0.05] [0.21] [0.58]
48 Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.12] [0.02] [0.03] [0.04] [0.03] [0.07] HP [0.11] [0.03] [0.04] [0.05] [0.04] [0.10] 4D [0.14] [0.08] [0.06] [0.05] [0.06] [0.16] BP [0.15] [0.04] [0.04] [0.05] [0.04] [0.11] HP [0.14] [0.05] [0.05] [0.05] [0.04] [0.13] 4D [0.19] [0.10] [0.08] [0.05] [0.07] [0.23] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.04] [0.07] [0.13] [0.02] [0.08] [0.34] HP [0.06] [0.07] [0.12] [0.03] [0.08] [0.32] 4D [0.11] [0.11] [0.11] [0.04] [0.13] [0.39] BP [0.08] [0.10] [0.29] [0.03] [0.14] [0.80] HP [0.09] [0.10] [0.23] [0.04] [0.11] [0.70] 4D [0.09] [0.18] [0.17] [0.04] [0.21] [0.74] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.05] [0.06] [0.10] [0.02] [0.08] [0.27] HP [0.06] [0.06] [0.09] [0.03] [0.08] [0.26] 4D [0.13] [0.12] [0.08] [0.04] [0.13] [0.30] BP [0.09] [0.09] [0.13] [0.04] [0.13] [0.44] HP [0.09] [0.09] [0.11] [0.05] [0.11] [0.40] 4D [0.24] [0.19] [0.15] [0.07] [0.23] [0.56]
49 Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio BP [0.06] [0.06] [0.29] [0.04] [0.08] [1.01] HP [0.08] [0.07] [0.27] [0.05] [0.08] [1.09] 4D [0.13] [0.11] [0.10] [0.05] [0.13] [0.50] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio Median BP [0.08] [0.08] [0.28] [0.03] [0.08] [0.60] HP [0.14] [0.10] [0.28] [0.06] [0.10] [0.84] 4D [0.28] [0.12] [0.21] [0.07] [0.08] [0.65] Mean BP [0.05] [0.03] [0.13] [0.04] [0.04] [0.48] HP [0.11] [0.06] [0.24] [0.05] [0.07] [0.78] 4D [0.14] [0.11] [0.11] [0.05] [0.09] [0.46] Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio Median BP [0.25] [0.08] [0.08] [0.09] [0.10] [0.19] HP [0.73] [0.24] [0.10] [0.35] [0.25] [0.31] 4D [0.63] [0.27] [0.08] [0.18] [0.25] [0.31] Mean BP [0.16] [0.05] [0.07] [0.08] [0.05] [0.17] HP [0.47] [0.18] [0.10] [0.25] [0.18] [0.35] 4D [0.60] [0.26] [0.10] [0.17] [0.24] [0.38]
50 Std. Dev. Relative Std. Dev. Pre-84 Post-84 Ratio Pre-84 Post-84 Ratio Output BP [0.13] [0.06] [0.04] HP [0.13] [0.07] [0.04] 4D [0.18] [0.16] [0.05] /worker BP [0.08] [0.05] [0.05] [0.03] [0.06] [0.12] HP [0.08] [0.06] [0.05] [0.03] [0.06] [0.12] 4D [0.14] [0.08] [0.04] [0.03] [0.07] [0.13] /hour BP [0.06] [0.06] [0.07] [0.03] [0.07] [0.18] HP [0.07] [0.06] [0.07] [0.03] [0.07] [0.18] 4D [0.13] [0.08] [0.06] [0.03] [0.09] [0.19] Correlation with Output Correlation with Empl. Correlation with Hours Pre-84 Post-84 Change Pre-84 Post-84 Change Pre-84 Post-84 Change Employment BP [0.02] [0.05] [0.06] HP [0.03] [0.04] [0.05] 4D [0.03] [0.05] [0.06] Hours BP [0.02] [0.04] [0.04] HP [0.02] [0.03] [0.04] 4D [0.02] [0.05] [0.05] Wage BP [0.08] [0.09] [0.12] [0.09] [0.09] [0.13] [0.09] [0.10] [0.14] HP [0.08] [0.10] [0.12] [0.09] [0.10] [0.14] [0.09] [0.10] [0.14] 4D [0.07] [0.07] [0.10] [0.07] [0.08] [0.11] [0.07] [0.08] [0.11]
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