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.

July 2010 [download pdf] - Also available as IZA Discussion Paper ????
Previous versions: September 2008 and October 2009
First version: August 2008

Data

All data refer to the US over the postwar period and are obtained from publicly available sources, see the paper for details.

• Dataset in Stata format and comma-separated format
• Stata code used to construct this dataset from original data sources
• Stata code to calculate business cycle statistics (with standard errors)

Programs

We used Dynare version 4.0.3 for Matlab to simulate a second order approximation of the model.

· Matlab code to produced the simulated moments

· Dynare mod-file with the model definition

If you have any questions about these data or programs, please email me.

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Thijs van Rens  | CREI  |  Department of Economics and Business  |  Universitat Pompeu Fabra