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Motivation Motivation 0 Business cycle theory: 0 any change in labor usage can be decomposed into 0 a movement along a marginal productivity schedule 0 and a shift of the schedule 0 Mulligan (2009) decomposes this differential for the current crisis and compares to the previous ones Intuition 0 0 0 At the „hip” of the cycle two things coincide: a. high demand for products b. high demand for labour and high labour productivity Just after the „hip” demand no longer increases => adjustments necessary a. either on labour demand with unchanged demand/productivity schedules b. or on productivity – upward shift of the demand/productivity schedules Over longer horizon 0 adjustment of type (a) leads to permament reduction in employment (till next positive demand shock) 0 adjustment of type (b) implies growing labour productivity => efficiency and TFP Outline 0 Method 0 Data 0 Findings 0 Conclusions Method 1. Have to find a „hip” in the cycle… 2. … anchor on the „hip” the changes in productivity and employment 0 how to measure productivity? 0 how to measure employment? 3. At the end we expect rather coherent: 0 shifts OF the demand/productivity schedules and 0 shifts ALONG the demand/productivity schedules 4. We do that for EU countries for as many countries as there is data Method – step by step 1. Identify the boom and the bust 2. Find peak and anchor there 3. Compute cummulated change of labour use and productivity 4. Graph them one against the other 5. Repeat for all countries for all cycles Method – 1. finding the hip 0 Short term and long term fluctuations - HP filter Second 0,03 First 0,02 Third 270000 8 250000 ? 0,01 6 230000 0 4 210000 -0,01 190000 2 -0,02 -0,03 170000 1996q3 1997q3 1999q3 2000q3 2001q3 GDP yoy GDP HP filter (lambda=16) -0,04 -0,05 1995Q01 1998q3 2002q3 2003q3 2004q3 2005q3 2006q3 2007q3 Output gap (HP filter) 2008q3 GDP HP filter (lambda=1600) GDP HP filter (lambda=160) 0 150000 GDP sa 130000 1997Q01 1999Q01 2001Q01 2003Q01 2005Q01 2007Q01 2009Q01 0 After filtering away the trend – identify peaks Method – 2. measuring productivity and employment 0 Employment 0 Ideally: hours worked in economy 0 Reality: not available for any of the EU countries 0 Working/employed/FTE – huge differences 0 Eventually: working, no FTE 0 Labour productivity: 0 Essentially: output per hour worked 0 Reality: no output (GDP) no hours worked (heads) 0 Eventually: GDP/working Method – 3. link labour productivity and employment 0 Refresh Mulligan 0 In reality for European economies? 0 Nice RBC-coherent pattern Data Country Belgium Czech Republic Denmark Estonia Finland France Germany Hungary Italy Latvia Lithuania Netherlands Poland Spain United Kingdom Beginning of sample 1990q1 1995q1 1990q1 1995q1 1990q1 1990q1 1991q2 1995q1 1990q1 1995q1 1995q1 1990q1 1995q1 1990q1 1992q2 End of sample 2009q4 2009q4 2009q4 2009q3 2009q4 2009q3 2009q4 2009q4 2009q2 2009q4 2009q4 2009q3 2009q4 2009q4 2009q3 Total no. of obs. 80 60 80 59 80 79 75 60 78 60 60 79 58 80 70 Results - identified „hips” Country No of peaks in sample Peaks identified Belgium 3 1992q1, 2000q4 Czech Republic 2 1998q2, 2007q3 Denmark 2 2000q4, 2008q2 Estonia 2 1997q4, 2007q4 Finland 3 1990q4, 1998q2, 2007q4 France 3 1992q1, 2001q1, 2008q1 Germany 3 1995q3, 2002q1, 2008q2 Hungary 2 1998q1, 2008q1 Italy 3 1992q1, 1996q1, 2001q1 Latvia 2 1997q4, 2008q1 Lithuania 2 1997q4, 2008q2 Netherlands 3 1992q1, 2001q1, 2008q1 Poland 2 2000q2, 2008q1 Spain 3 1992q1, 2001q1, 2007q4 United Kingdom 2 1999q3, 2008q1 Results – identified „hips” Results – identified „hips” Germany 0.04 Labour productivity 0.03 0.03 2008q1 2001q4 0.02 1995q2 0.02 0.01 0.01 -0.08 -0.05 -0.03 0.00 0.00 -0.01 Labour demand 0.03 Results – groups of countries 0 Analysis reveals few adjustment patterns in the last crisis 0 (a) a canonical RBC; 0 (b) reduced (or absent) change in employment and reductions in productivity; 0 (c) a contemporaneous reduction in both productivity and employment (profound recession); 0 (d) a growth or preservation of both employment and productivity. 0 These reactions are not like in the past. Group 1 – RBC consistent 0 Note: solid black line (late 2000s); dashed black line (late 1990s for Hungary and early 1990s for Spain) Group 2 – eventually RBC consistent Group 3 – productivity drop Group 4 – both drop Group 5 – all quiet Conclusions 0 We applied simple tool to see if recent crisis is RBC type in Europe 0 We also compare it to previous crises 0 Many of the past were RBC in nature 0 Now – only few countries have „adjustment” patterns as economists would like it 0 Policies to stop employment adjustment at the expense of productivity 0 Some countries „on the safe side” even if GDP contracts 0 Some countries in deep recession