The Vanishing Procyclicality of Labour Productivity Short title: Vanishing Procyclicality of Productivity Jordi Gal Thijs van Rens y This version: November 2019 First version: August 2008 Abstract We document two changes in postwar US macroeconomic dynamics: the pro- cyclicality of labour productivity vanished, and the relative volatility of employment rose. We propose an explanation for these changes that is based on reduced hiring frictions due to improvements in information about the quality of job matches and the resulting decline in turnover. We develop a simple model with hiring frictions and variable e/ort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics. Keywords: labour hoarding, hiring frictions, e/ort choice JEL classication: E24 E32 We have beneted from comments and suggestions by Almut Balleer, Paula Bustos, Isabel Cair, Vasco Carvalho, Wouter Denhaan, Jan Eeckhout, Ester Faia, Jim Malcomson, Claudio Michelacci, Kris Nimark, Evi Pappa, Giorgio Primiceri, Ay‚segül ‚ Sahin, Carlos Thomas, Jaume Ventura, Joachim Voth, Eran Yashiv and participants in the CREI Macro Faculty Lunch, NBER Summer Institute, EES research network workshop in Kiel, CEPR-RIETI Workshop on Labour Markets and the Macroeconomy in Tokyo, University of Amsterdam, Malaga Workshop on Labour Market Frictions, European Central Bank, Norges Bank, CPB, ECB-CEPR Workshop on European Labour Market Adjustment, Sabanci University, ESSIM 2010 and SED 2010. Davide Debortoli provided outstanding research assistance. We gratefully acknowledge nancial support from the European Research Council, the Spanish Ministry of Science and Innovation (grants SEJ2006-02235, ECO2008-01665, CSD2006-00016 and Juan de la Cierva); the Generalitat de Catalunya (DIUE grant 2009SGR-1157); and the Barcelona GSE Research Network. Thijs van Rens gratefully acknowledges the hospitality of the UNSW Sydney School of Economics during the nal stages of preparing this paper. y Corresponding author: Department of Economics, University of Warwick, Gibbet Hill Road, Coven- try CV4 7AL, United Kingdom, J.M.van-Rens@warwick.ac.uk 1 Downloaded from https://academic.oup.com/ej/advance-article/doi/10.1093/ej/ueaa065/5840541 by guest on 17 August 2020