The Labor Wedge

2018 ◽  
pp. 1-19
Keyword(s):  
Labor Wedge

SHOCKS AND FRICTIONS IN THAI ECONOMY: THROUGH THE LENS OF BUSINESS CYCLE ACCOUNTING

2020 ◽  
pp. 1-15
Author(s):  
VIMUT VANITCHAREARNTHUM
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Prime Factor ◽  
Aggregate Fluctuations ◽  
Aggregate Output ◽  
Business Cycle Accounting ◽  
Labor Wedge ◽  
Model Set ◽  
Set Up ◽  
Investment Fluctuation

This paper applies business cycle accounting methodology to analyze the sources of aggregate fluctuations in Thai economy, especially during the recent severe recessions in 1997–1998 and 2008–2009. This exploration helps researchers uncover possible shocks and frictions that drive business cycle in a small and open economy within a minimal model set-up. Under this methodology, a fluctuation in aggregate output can be accounted for by exogenous time-varying wedges, namely efficiency wedge, investment wedge, labor wedge, government wedge, etc. This study found that the efficiency wedge is essential in accounting for aggregate output, consumption and investment fluctuation, while the bond wedge, which only present in an open economy setting, is a prime factor in accounting for movement in current accounts. I conducted counterfactual experiments to see what accounts for the output drop during recent recessions. I find that the efficiency wedge played a key role in recent recessions in Thailand, while the investment wedge was accounted for slow economic recovery after the recessions.

scholarly journals The Labor Wedge: MRS vs. MPN

2013 ◽  
Author(s):  
Loukas Karabarbounis
Keyword(s):  
Labor Wedge

scholarly journals Debt Constraints and the Labor Wedge

2016 ◽  
Vol 106 (5) ◽  
pp. 548-553 ◽  
Author(s):  
Patrick Kehoe ◽  
Virgiliu Midrigan ◽  
Elena Pastorino
Keyword(s):  
Great Recession ◽  
Household Debt ◽  
Real Wages ◽  
The Great Recession ◽  
Labor Wedge ◽  
Highly Correlated ◽  
The U.S

Changes in household debt and employment across regions of the U.S. during the Great Recession are highly correlated: regions where the decrease in household debt was most pronounced were also regions where the decline in employment was most severe. We show that the drop in employment in the regions that have experienced the largest decrease in household debt is mostly accounted for by changes in the labor wedge (deviations from a static consumption-leisure choice) as opposed to changes in real wages. We argue that such a pattern is consistent with fluctuations in debt constrain01/2ts in a standard Bewley-Aiyagari model.

The labor wedge: MRS vs. MPN

2014 ◽  
Vol 17 (2) ◽  
pp. 206-223 ◽  
Author(s):  
Loukas Karabarbounis
Keyword(s):  
Labor Wedge

scholarly journals Resurrecting the Role of the Product Market Wedge in Recessions

2018 ◽  
Vol 108 (4-5) ◽  
pp. 1118-1146 ◽  
Author(s):  
Mark Bils ◽  
Peter J. Klenow ◽  
Benjamin A. Malin
Keyword(s):  
United States ◽  
Labor Market ◽  
The United States ◽  
Central Place ◽  
The Self ◽  
Intermediate Inputs ◽  
Matching Frictions ◽  
Labor Wedge ◽  
Sticky Wages

Employment and hours are more cyclical than dictated by productivity and consumption. This intratemporal labor wedge can arise from product or labor market distortions. Based on employee wages, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because wages may be smoothed versions of labor's true cyclical price, we instead examine the self-employed and intermediate inputs, respectively. For recent decades in the United States, we find price markup movements are at least as cyclical as wage markup movements. Thus, countercyclical price markups deserve a central place in business-cycle research, alongside sticky wages and matching frictions. (JEL E24, E32, E63, J31, J41)

Convergence in Macroeconomics: The Labor Wedge

2009 ◽  
Vol 1 (1) ◽  
pp. 280-297 ◽  
Author(s):  
Robert Shimer
Keyword(s):  
Job Search ◽  
Labor Market Outcomes ◽  
The United States ◽  
Competitive Market ◽  
Market Outcomes ◽  
Marginal Rate ◽  
Market Clearing ◽  
Macroeconomic Models ◽  
Marginal Rate Of Substitution ◽  
Labor Wedge

I review research on the behavior of the labor wedge, the ratio between the marginal rate of substitution of consumption for leisure and the marginal product of labor. According to competitive, market-clearing macroeconomic models, the ratio is easy to measure and should be equal to the sum of consumption and labor taxes. The observation that the wedge is higher in continental Europe than in the United States has proved useful for understanding the extent to which taxes can explain differences in labor market outcomes. The observation that the ratio rises during recessions suggests some failure of competitive, market-clearing macroeconomic models at business cycle frequencies. The latter observation has guided recent research, including work on sticky wage models and job search models. (JEL E24, E32, J64)

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