Hours and Employment Variation in Business Cycle Theory

Abstract

Previous business cycle models have made the assumption that all the variation in the labor input is either due to changes in hours per worker or changes in number of workers, but not both. In this paper, both vary. We think this a better model for estimating the contribution of Solow technology shocks to aggregate fluctuations. We find that about 70 percent of U.S. postwar cyclical fluctuations are induced by variations in the Solow technology parameter.

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