1 / 15

Comments on: “Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility”

Comments on: “Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility” b y Pierpaolo Benigno , Luca Antonio Ricci a nd Paolo Surico. Julio J. Rotemberg. Prepared for Sveriges Riksbank conference “The Labor market and the

media
Download Presentation

Comments on: “Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility”

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Comments on: “Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility” by PierpaoloBenigno, Luca Antonio Ricci and Paolo Surico Julio J. Rotemberg Prepared for SverigesRiksbank conference “The Labor market and the Macroeconomy,” Stockholm, September 2-3, 2010.

  2. Great Issues • What long run conditions lead to worse recessions – and hence higher average • unemployment. • and where • Focus on extending the “monopoly union” model of Dunlop (1944) to • the case of potentially asymmetrically rigid wages with random productivity. Substantive contributions • A new fact: Volatility in productivity raises unemployment. • Demonstration that, under certain conditions, the monopoly union model can • explain this as well as the negative correlation between unemployment and • mean productivity growth.

  3. A neat modeling aspect: employment is constant when wages are flexible Let household i’s utility be: It faces labor demand: First order condition for flexible wages:

  4. Comments on the assumptions • Why does a union view wage changes as costly? • Fear of upsetting its membership? • We know wages are quoted in units of currency. • Why are wages “perfectly indexed” to inflation but not at all to productivity? • This is clearly better for the fit of the model than 0% indexing to inflation. • Perhaps one could say something about what indexing fits best.

  5. Uncomfortable implications of the model 1 - Constant labor share – and yet the VAR includes both Y/L and W/P…

  6. Uncomfortable implications of the model 2 Quadratic cost model is close to “superneutral” Minimize FOC So, asymmetries essential for getting big effects of g In favored specification, there is only a cost of wage declines Then: recessions occur only when the exogenous component of productivity actually declines.

  7. Comment 1: how should one measure (trend) mean and variance of productivity growth, and mean unemployment? They show moving averages - Still very correlated with cycles And VAR estimates with varying coefficients - Lots of possible specification errors - Lots of nuisance parameters

  8. My favorite method for measuring trends ensures temporary trend changes are uncorrelated with cycles

  9. Comparison of trends: Unemployment

  10. Comparison of trends: Mean productivity growth

  11. Comparison of trends: Variance of productivity growth Using my variables: u = 9.4 – 1.2 g - 1.5e^4 variance R2=.71 (.06) (1.3e^3) DW=.004

  12. Main concern: Why is this a model of unemployment? Model has clear implications for L (employment) and unemployment is defined as (1-L). Recast model as Gali, Smets and Wouters (2010)? Shouldn’t this model (also) explain the employment to population ratio?

  13. Results using trend Employment/Population ratio Using CO detrending: Correlation(u, g) = -.48 Correlation(e/p, g) = -.06 Using my explanatory variables: e/p = 67 - .15 g - 1e^5 variance R2=.97 (.05) (1.3e^4) Using BSR’s e/p = 84 – 5.7 g - 4.7 variance R2=.76 (.41) (.20)

  14. Conclusions Ambitious – provocative paper that raises lots of interesting questions. Measuring long run variances appears to be tricky. Unemployment is only partly non-employment - and this distinction seems particularly importance at low frequencies

More Related