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PRODUCTIVITY AND THE LABOR MARKET: COMOVEMENT OVER THE BUSINESS CYCLE

Authors

  • Marcus Hagedorn,

    1. University of Cologne, Germany; University of Pennsylvania, U.S.A.
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  • Iourii Manovskii

    1. University of Cologne, Germany; University of Pennsylvania, U.S.A.
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    • We thank an anonymous referee and participants of the IZA Workshop “Frictions in the Labor Market: Causes, Consequences and Policy Implications” for their comments. Sergiy Stetsenko provided excellent research assistance. This research has been supported by the National Science Foundation Grant Nos. SES-0617876 and SES-0922406. Please address correspondence to: Iourii Manovskii, Department of Economics, University of Pennsylvania, 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104. E-mail: manovski@econ.upenn.edu.


  • Manuscript received September 2009.

Abstract

The productivity-driven Mortensen–Pissarides model predicts that labor productivity is strongly correlated with labor market variables whereas these correlations were argued to be much weaker in the data, especially since the 1980s. We first document that the size of these discrepancies between the data and the model becomes substantially smaller if employment data from the Current Population Survey is used in measuring productivity instead of the commonly used employment data from the Current Employment Statistics. Second, we show that incorporating time to build and a stochastic value of home production helps reconcile the quantitative performance of the model with the data.

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