publication . Preprint . 2009

What Caused the Recession of 2008? Hints from Labor Productivity

Casey Mulligan;
Open Access
  • Published: 01 Feb 2009
Abstract
A labor market tautology says that any change in labor usage can be decomposed into a movement along a marginal productivity schedule and a shift of the schedule. I calculate this decomposition for the recession of 2008, assuming an aggregate Cobb-Douglas marginal productivity schedule, and find that all of the decline in employment and hours since December 2007 is a movement along the schedule. This finding suggests that a reduction in labor supply and/or an increase in labor market distortions are major factors in the 2008 recession. The decline in aggregate consumption suggests that the reduction in labor supply (if any) is neither a wealth nor an intertempor...
Subjects
free text keywords: jel:E24, jel:E32, jel:J22

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