The Productivity Puzzle and the Decline of Unions

Abstract: For nearly four decades in the post-War United States, average labour productivity and total factor productivity remained procyclical — falling during recessions and rising in booms. During the mid-1980s this procyclicality of productivity suddenly started to vanish. I argue that increased labour market flexibility, as manifest in rapid de-unionization, can explain this puzzle. I show that U.S. states and industries with a larger drop in union density experienced a deeper fall in the productivity correlations. Falling costs of hiring and firing workers, due to the decline in union power, prompted firms to rely more on employment adjustment (extensive margin) instead of changing workers’ effort through labour hoarding (intensive margin). High dependence on labour hoarding explains productivity’s historical procyclicality, and reduced importance of labour hoarding in recent decades explains why productivity is now less procyclical. Changes in the responses of the aggregate U.S. economy to technology and demand shocks also bear out this mechanism. Greater reliance on hiring and firing of workers also implied a rise in the relative volatility of employment. Allowing the hiring cost to decline between pre and post-1980s in an otherwise standard New Keynesian model with endogenous effort is shown to match almost the entire fall in cyclical productivity correlations and rise in the relative volatility of employment. [Link to paper]

Presentations: European University Institute, University of Queensland, Shiv Nadar University, Ozyegin University, Indian Institute of Technology Kanpur, Ashoka University, Nazarbayev University, Bucknell University, University of Manchester, Brock University, Delhi School of Economics Winter School, University of British Columbia, Bank of Canada Graduate Student Paper Award Workshop, Western Economic Association International Annual Conference, CIREQ PhD Students’ Symposium

Consumption and Income Inequality across Generations (with Giovanni Gallipoli & Hamish Low)

Abstract: We characterize the joint evolution of cross-sectional inequality in earnings, other sources of income and consumption across generations in the U.S. To account for cross-sectional dispersion, we estimate a model of intergenerational persistence and separately identify the influences of parental factors and of idiosyncratic life-cycle components. We find evidence of family persistence in earnings, consumption and saving behaviours, and marital sorting patterns. However, the quantitative contribution of idiosyncratic heterogeneity to cross-sectional inequality is significantly larger than parental effects. Our estimates imply that intergenerational persistence is not high enough to induce further large increases in inequality over time and across generations. [Link to paper; HCEO; CEPR]

Presentations: University of Chicago (scheduled), University of Manchester, Econometric Society Virtual World Congress, University of Naples, Barcelona Graduate School of Economics Summer Workshop, Canadian Economic Association Annual Conference – Bank of Canada session, Deutsche Bundesbank International Conference on Household Finance, University of Cambridge, University of British Columbia, NBER Summer Institute, Society for Economic Dynamics Annual Meeting

AwardBest 2nd Year PhD Research Paper (2016) at the Vancouver School of Economics for a single-authored version


Inclusive Growth: Economics as if People Mattered, Global Business Review, 2018 (with Debasmita Das)

Abstract: This article provides a holistic working definition of inclusive growth. We measure inclusive growth through a newly proposed index, named as the Inclusive Growth Index (IGI), based on 24 developmental indicator variables (categorized into expansion, sustainability, equity in access, and efficiency of economic activities and institutions) as its components. We have employed two kinds of weighting schemes in constructing the index: an ad hoc weighting scheme and a weighting scheme based on principal component analysis (PCA), performed differently on variables under each dimension. This index helps one to rank countries or regions according to their respective inclusive growth achievements and to potentially track the time trend of a particular country. In our study, we have calculated IGI for 16 Asian countries and compared the IGI scores across the nations. [Link to paper]

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