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.
Highlights
;8C4A0CDA4 -4 =>AAC 8B 4G?A4BB43 8= DC8;8CH D=8CB 0=3 4@D0;B 8= C74 5A82C8>=;4BB BC403H BC0C4 -4 CA40C C74 2DAE0CDA4 >5 C74 ?A>3D2C8>= 5D=2C8>= 8= 4R>AC 0B 0 5A44 ?0A0 8;;DBCA0C4 C74 @D0;8C0C8E4 270=64B 8= C74 1DB8=4BB 2H2;4 C F74C74A C74 34; 20= @D0=C8C0C8E4;H A BC >5 C74 B42>=3 1B4AE43 270=64B 270=68=6 875A C74 ;01>A =B
-4 =>F B8A34A C> 20;2D;0C4 C74 B42>=3 5 8=C4A4BC -4 BC0AC F8C7 C74 34; F8C7 K4G81;4 F064B 0=3 B7>F C70C 0 A43D2C8>= 8= ;01>A =B = C74 2H2;820;8CH >5 ;01>A ?A>3D2C8E8CH 0=3 C74 A4;0C8E4 E>;0C8;8CH >5 ;01>A 8=?DC *74= F4 2>=B834A 4=3>64=>DB F064 A86838CH 0=3 B7>F C70C C74 34; 20= 0;B> ;0C8;8CH >5 F064B 0=3 85 4=3>64=>DB F064 A86838C84B 0A4 BCA>=6 4=>D67 20= 0;B> 64=4A0C4 0 A43D2C8>= 8= >DC?DC E>;0C8;8CH
*74 BDC?DC E>;0C8;8CH 8= A4B?>=B4 C> C74 A43D2C8>= 8= ;01>A =B 8B A4E4AB43 C> 0 BA C74 34; F8C7 4=3>64=>DB F064 A86838CH *74 A40B>= 8B C70C 8=2A40B43 F064 K4G818;8CH 30=B4 C> C427=>;>6H B7>2:B *78B A4BD;C 8B 2>=B8BC4=C F8C7 0 ?>BB81;4 A>;4 >5 0 342;8=4 8= ;01>A =B 0B 0 B>DA24 >5 C74 A40C #>34A0C8>= >F4E4A C74 4R42C 8B 0608= AC0=C @D0=C8C0C8E4;H
Summary
;8C4A0CDA4 -4 =>AAC 8B 4G?A4BB43 8= DC8;8CH D=8CB 0=3 4@D0;B 8= C74 5A82C8>=;4BB BC403H BC0C4 -4 CA40C C74 2DAE0CDA4 >5 C74 ?A>3D2C8>= 5D=2C8>= 8= 4R>AC 0B 0 5A44 ?0A0 8;;DBCA0C4 C74 @D0;8C0C8E4 270=64B 8= C74 1DB8=4BB 2H2;4 C F74C74A C74 34; 20= @D0=C8C0C8E4;H A BC >5 C74 B42>=3 1B4AE43 270=64B 270=68=6 875A C74 ;01>A =B
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
