Productivity and unemployment over the business cycle
The low correlation between cyclical unemployment and productivity over the post-war period hides a large sign switch in the mid-1980s: from significantly negative the correlation became significantly positive. Using a search model of unemployment with nominal rigidities and variable labor effort, I show that technology shocks can generate a positive unemployment-productivity correlation whereas non-technology shocks (i.e. aggregate demand shocks) tend to do the opposite. In this context, I identify two events that can quantitatively explain the increase in the correlation: (i) a sharp drop in the volatility of non-technology shocks in the mid-1980s, and (ii) a decline in the response of productivity to non-technology shocks, which from procyclical became acyclical in the last 25 years.
Year of publication: |
2010
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Authors: | Barnichon, Regis |
Published in: |
Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 57.2010, 8, p. 1013-1025
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Publisher: |
Elsevier |
Saved in:
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