Paper # Author Title
Recently, GalĂ­ and others find that technological progress may be contractionary: a favorable technology shock reduces hours worked in the short run. We ask whether this observation is robust in disaggregate data. According to our VAR analysis of 458 four-digit U.S. manufacturing industries for 1958-1996, some industries do exhibit temporary reduction in hours in response to a permanent increase in TFP. However, there are far more industries in which technological progress significantly increases hours. Using micro data on average price duration, we ask whether the difference across industries is related to the stickiness of industry-output prices. Among 87 manufacturing goods, we do not find such a relation. Download Paper
We investigate the mapping from individual to aggregate labor supply using a general equilibrium heterogeneous-agent model with incomplete market. Heterogeneity of the workforce is designed such that the evolution of wages, worker flows between employment and nonemployment,and cross-sectional earnings distribution are consistent with micro data. We find that the aggregate labor-supply elasticity of such an economy is around 1, bigger than micro estimates but smaller than those often assumed in aggregate models. Download Paper
We examine the impact of wage stickiness when employment has an effort as well as hours dimension. Despite wages being predetermined, the labor market clears through the effort margin. Consequently, welfare costs of wage stickiness are potentially much, much smaller. Download Paper
This paper suggests that skill accumulation through past work experience, or "learning-by-doing", can provide an important propagation mechanism for initial shocks, as the current labor supply affects future productivity. Our econometric analysis uses a Bayesian approach to combine micro-level panel data with aggregate time series. Formal model evaluation shows that the introduction of the LBD mechanism improves the model's ability to fit the dynamics of aggregate output and hours. Download Paper
We investigate the role of labor-supply shifts in economic fluctuations. A new VAR identification scheme for labor supply shocks is proposed. Our method provides an alternative identification scheme, which does not rely on "zero-restrictions" . According to our VAR analysis of post-war U .S. data, labor-supply shifts account for about half the variation in hours and one-fifth of variation in aggregate output. To assess the role of labor-supply shifts in a more structural framework, estimates from a dynamic stochastic general equilibrium (DSGE) model with stochastic variation in home production technology are compared to those from the VAR. Download Paper
To generate persistence we augment the standard real business cycle (RBC) model with a "learning by doing" (LBD) mechanism, where current labor supply affects workers' future labor productivity. Our econometric analysis shows that the LBD model fits aggregate data much better than the standard RBC model. We calculate posterior odds for the structural models and formally show that the LBD model more closely mimics the autocorrelation and impulse response patterns that we found in a bivariate VAR analysis. Download Paper
We decompose underlying disturbances in total hours into three kinds: disturbances that shift the steady-state level of hours, those that change the sectoral composition of employment in the long-run, and those that cause temporary movement of hours around the steady-state. Our identifying restriction exploits the distinctive nature of the two margins of labor: employment and hours per worker. According to the variance decompostion from a VAR based on Post-War U.S. monthly data, we find that disturbances which eventually shift the steady-state level of hours account for three-quarters of cyclical fluctuation in aggregate hours. This challenges the commonly used restriction of constant hours along the balanced growth path in the business cycle literature. Further, we do not find a significant role for sectoral reallocation shocks in the cyclical fluctuation of hours. Download Paper
The importance of sticky prices in business cycle fluctuations has been debated for many years. But we argue, based on a large empirical literature from the 1950's and 60's, that it is necessary to distinguish the response of price to an increase in factor prices from its response to an increase in marginal cost generated by an expansion in production. Consistent with that earlier literature, we find for 450 U.S. manufacturing industries that prices do respond more to increases in costs driven by changes in factor prices than to increases in marginal cost precipitated by expansions in output. We explore two models that can potentially explain these findings. Both break the link between price and marginal cost, thereby generating what one might naively interpret as average-cost pricing. The first is driven by firms pricing to limit entry . The second is driven by firms pricing to limit non-price competition within their market. Download Paper
An assignment problem is incorporated into a dynamic general-equilibrium model to explore a variety of issues in labor market fluctuations such as aggregate labor supply elasticity, skill premium, capital-skill complementarity, and the compositional bias in aggregate wages. Agents self-select into managerial, production, or non-market tasks based on comparative advantages. An equilibrium is characterized by a mapping from the skill distribution and production technology into the critical values of talent for job assignment. Investigation of the underlying assignment problem of workers enhances our understanding of aggregate economy and helps to resolve some important issues in equilibrium macroeconomics. Download Paper
We examine the impact of wage stickiness when employment has an effort as well as hours dimension. Despite wages being predetermined, the labor market clears through the effort margin. We compare this model quantitatively to models with flexible and sticky wages, but no effort margin. Fluctuations in hours are intermediate to the standard flexible-wage and sticky-wage models; but output and consumption behave much like in the flexible-wage economy. Consequently, welfare costs of wage stickiness are potentially much, much smaller if one entertains an effort dimension. Download Paper
Two investment anomalies in aggregate home production models are investigated: excess volatility and comovement. Adjustment cost in capital accumulation reduces both volatility and the negative correlation in investments on capital goods in the market and at home. Investments commove to the extent that durable goods and time are good substitutes in consumption activities. Consumers substitute durable goods for time at home when the opportunity cost of time is high during booms. Based on the Consumer Expenditure Survey, I show that households' expenditure shares on durable goods are negatively associated with household leisure, indicating that durable goods are relatively good substitutes for time. Download Paper