The Productivity Puzzle and the Decline of Unions

Mitra, Aruni (2021): The Productivity Puzzle and the Decline of Unions.

Abstract

This paper argues that rapid de-unionization during the 1980s can explain the sudden vanishing of the procyclicality of productivity in the U.S. I use cross-sectional evidence from U.S. states and industries to argue that the lower cost of hiring and firing workers due to the decline in union power prompted firms to rely less on labour hoarding, making productivity less procyclical. Allowing the hiring cost to decrease by the same proportion as the decline in union density can match almost the entire drop in cyclical productivity correlations in a model with endogenous effort and costly employment adjustment.

• Item Type: MPRA Paper
• Language: English
• Keywords: productivity, unions, hiring cost, factor utilization, DSGE
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J50 - General

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