The productivity puzzle and the decline of unions

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Abstract

This paper finds that rapid de-unionization can explain the sudden vanishing of the procyclicality of productivity in the U.S. during the 1980s, a phenomenon dubbed the ‘productivity puzzle’. Cross-sectional evidence from U.S. states and industries shows that a decline in union power led to a decrease in the cost of hiring and firing workers, which prompted firms to rely less on labor hoarding, making productivity less procyclical. In a model with endogenous worker effort, a decrease in employment adjustment cost by the amount implied by de-unionization explains a significant part of the observed decline in the procyclicality of productivity.

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APA

Mitra, A. (2024). The productivity puzzle and the decline of unions. Journal of Economic Dynamics and Control, 159. https://doi.org/10.1016/j.jedc.2023.104806

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