The Vanishing Procyclicality of Labour Productivity | Zendy

Jordi Galı́ | Zendy; Thijs van Rens | Zendy

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The Vanishing Procyclicality of Labour Productivity

Author(s) -

Jordi Galı́,

Thijs van Rens

Publication year - 2020

Publication title -

the economic journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.683

H-Index - 160

eISSN - 1468-0297

pISSN - 0013-0133

DOI - 10.1093/ej/ueaa065

Subject(s) - business cycle , economics , volatility (finance) , productivity , econometrics , quality (philosophy) , labour economics , variable (mathematics) , monetary economics , macroeconomics , mathematics , mathematical analysis , philosophy , epistemology

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.

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