Primer: Labour Markets In Neoclassical Models — Brian Romanchuk

The labour market is a key driver for business cycles. Within standard economic models where production is mainly a function of capital and labour (and productivity which determines the multiplier from these inputs), given that productivity is normally fairly stable, we can only generate a recession via a drop in employment. (The recession of 2020 provides an example of "productivity" dropping as a result of governments shuttering activity, but even then, the mechanism for lower production was stopping workers from going to work. This could be captured any number of ways within a model.)

My comments here are fairly generic, but I am using the paper "Confidence, Crashes and Animal Spirits" by Roger E. A. Farmer* as an example one could look at. I am certainly not in a position to authoritatively survey the neoclassical literature, but my comments here are based on a sampling of benchmark models....

Bond Economics
Primer: Labour Markets In Neoclassical Models
Brian Romanchuk

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