Labor hoarding and the business cycle

C. Burnside, M. Eichenbaum, S. Rebelo

Research output: Contribution to journalArticlepeer-review

201 Scopus citations

Abstract

This paper investigates the sensitivity of Solow residual based measures of technology shocks to labor hoarding behavior. Using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption, it estimates the fraction of the variability of the Solow residual that is due to technology shocks. Results support the view that a significant proportion of movements in the Solow residual are artifacts of labor hoarding behaviour. Specifically, the variance of innovations to technology is roughly 50% less than that implied by standard real business cycle models. In addition, results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate US output. -Authors

Original languageEnglish (US)
Pages (from-to)245-273
Number of pages29
JournalJournal of Political Economy
Volume101
Issue number2
DOIs
StatePublished - 1993

ASJC Scopus subject areas

  • Economics and Econometrics

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