Abstract
This paper finds that rapid de-unionization can explain the sudden vanishing of the procyclicality of productivity in the U.S. during the 1980s, a phenomenon dubbed the ‘productivity puzzle’. Cross-sectional evidence from U.S. states and industries shows that a decline in union power led to a decrease in the cost of hiring and firing workers, which prompted firms to rely less on labor hoarding, making productivity less procyclical. In a model with endogenous worker effort, a decrease in employment adjustment cost by the amount implied by de-unionization explains a significant part of the observed decline in the procyclicality of productivity.
Original language | English |
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Article number | 104806 |
Number of pages | 19 |
Journal | Journal of Economic Dynamics and Control |
Volume | 159 |
Early online date | 29 Dec 2023 |
DOIs | |
Publication status | Published - 1 Feb 2024 |
Keywords
- labour productivity
- unions
- hiring cost
- factor utilization
- DSGE model