TY  - JOUR
AU  - Mulligan,Casey
TI  - What Caused the Recession of 2008?  Hints from Labor Productivity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14729
PY  - 2009
Y2  - February 2009
UR  - http://www.nber.org/papers/w14729
L1  - http://www.nber.org/papers/w14729.pdf
N1  - Author contact info:
Casey B. Mulligan
University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL  60637
Tel: 773/702-9017
Fax: 773/702-8490
E-Mail: c-mulligan@uchicago.edu
AB  - A labor market tautology says that any change in labor usage can be decomposed into a movement along a marginal productivity schedule and a shift of the schedule.  I calculate this decomposition for the recession of 2008, assuming an aggregate Cobb-Douglas marginal productivity schedule, and find that all of the decline in employment and hours since December 2007 is a movement along the schedule.  This finding suggests that a reduction in labor supply and/or an increase in labor market distortions are major factors in the 2008 recession.  The decline in aggregate consumption suggests that the reduction in labor supply (if any) is neither a wealth nor an intertemporal substitution effect.  "Sticky real wages" or the emergence of significant work disincentives are possible explanations for these findings.
ER  -