Testing for Keynesian Labor Demand

Mark Bils, Peter J. Klenow, Benjamin A. Malin

Chapter in NBER book NBER Macroeconomics Annual 2012, Volume 27 (2013), Daron Acemoglu, Jonathan Parker, and Michael Woodford, editors (p. 311 - 349)
Conference held April 20-21, 2012
Published in May 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research
in NBER Book Series NBER Macroeconomics Annual

According to the textbook Keynesian model, short-run demand for labor is sensitive to the demand for goods. In this view, sellers deviate from setting the marginal product of labor proportional to the real wage, instead enduring or choosing lower price markups when demand for goods is high. We test this prediction across U.S. industries in the two decades up through the Great Recession. To identify movements in goods demand, we exploit how durability varies across 70 categories of consumption and investment. We also take into account the flexibility of prices and capital-intensity of production across goods. We find evidence in support of Keynesian Labor Demand.

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This paper was revised on June 6, 2012

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Document Object Identifier (DOI): 10.1086/669182

This chapter first appeared as NBER working paper w18149, Testing for Keynesian Labor Demand, Mark Bils, Peter J. Klenow, Benjamin A. Malin
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