This paper analyzes labor market responses to productivity shocks when firms set employment criteria on the basis of the likelihood of hiring high or low productivity workers. In response to a positive productivity shock, firms do not raise the criterion as much as the shock, increasing the proportion of low productivity workers among the employed. The observed average productivity may respond negligibly even if employment changes substantially. Interest rate fluctuations can yield an opposite relation between productivity and employment, explaining the weak empirical relationship.
Srinivas, S. and Sattinger, M. (2007), "The Employment–Productivity Relationship with Employment Criteria", Polachek, S.W. and Bargain, O. (Ed.) Aspects of Worker Well-Being (Research in Labor Economics, Vol. 26), Emerald Group Publishing Limited, Bingley, pp. 447-466. https://doi.org/10.1016/S0147-9121(06)26013-8Download as .RIS
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