Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/70753 
Year of Publication: 
2011
Series/Report no.: 
Working Paper No. 2011-9
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
Over the business cycle, labor's share of output is negatively but weakly correlated with output, and it lags output by about four quarters. Profit's share is strongly procyclical. It neither leads nor lags output, and its volatility is about four times that of output. Despite the importance of understanding the dynamics of income shares for understanding aggregate technology and the degree of competition in factor markets, macroeconomics lacks models that can account for these dynamics. This paper constructs a model that can replicate those facts. We introduce costly entry of firms in a model with frictional labor markets and find a link between the ability of the model to replicate income shares' dynamics and the ability of the model to amplify and propagate shocks. That link is a countercyclical real interest rate, a well-known fact in U.S. data but a feature that models of aggregate fluctuations have had difficulty achieving.
Subjects: 
labor's share
frictional labor market
firm entry
JEL: 
E3
E25
J3
E24
Document Type: 
Working Paper

Files in This Item:
File
Size
271.54 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.