NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Labor Hoarding, Inflexible Prices, and Procyclical Productivity

Julio J. Rotemberg, Lawrence H. Summers

NBER Working Paper No. 2591
Issued in May 1988
NBER Program(s):   EFG

Hall has pointed out that, when there is perfect competition and price flexibility, labor hoarding alone will not induce the Solow residual measured using labor's share in revenues to be procyclical. We show that, even with perfect competition, a small amount of price rigidity - we assume firms must set price slightly before the level of demand becomes known - makes the extent of procyclical productivity depend mainly on the extent of labor hoarding. We show that indeed, whether productivity is measured via the Solow method using labor's share in revenues or using other methods, it tends to be more procyclical in industries and in nations where labor hoarding is more important

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Document Object Identifier (DOI): 10.3386/w2591

Published: Published as "Inflexible Prices and Procyclical Productivity", Quarterly Journal of Economics", Vol. 105, no. 4 (1990): 851-874.

 
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