List of References
Galí, J., and M. Gertler, 1998, “Inflation Dynamics: A Structural Econometric Analysis,” mimeo, New York University and Universitat Pompeu Fabra.
Gordon, R.J., 1997, “The Time-Varying NAIRU and its Implications for Economic Policy,” Journal of Economic Perspectives 11, pp. 11–32.
Gordon, R.J., 1998, “Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU,” Brookings Papers on Economic Activity 2, pg. 297–347.
Hogan, V., 1998, “Explaining the Recent Behavior of Inflation and Unemployment in the United States,” International Monetary Fund Working Paper WP/98/145 (Washington, D.C.: International Monetary Fund).
Lipschitz, Leslie, and Donogh McDonald, 1991, “Real Exchange Rates and Competitiveness: A Clarification of Concepts and Some Measurements for Europe,” International Monetary Fund, Working Paper No. 91/25.
Lown, Cara, and Robert Rich, 1997, “Is There An Inflation Puzzle?” Federal Resreve Bank of New York Policy Review, December, pp. 51-69.
Neumark, D., D. Polsky, and D. Hansen, 1997, “Has Job Stability Declined Yet? New Evidence for the 1990’s,” Cambridge: National Bureau of Economic Research, Working Paper No. 6330.
Rotemberg, Julio, and Michael Woodford, 1999, “The Cyclical Behavior of Prices and Costs,” Cambridge: National Bureau of Economic Research, Working Paper No. 6909.
Staiger, Douglas, James Stock, and Mark Watson, 1996, “How Precise Are Estimates of the Natural Rate of Unemployment,” National Bureau of Economic Research: Cambridge, Working Paper No. 5477.
The authors would like to thank Steven Dunaway for helpful comments and Gustavo Ramirez for research assistance.
The current business cycle is defined to be the period from March 1991 to the present, while the previous business cycle is taken to be the period from November 1982 through July 1990. These business cycle dates are taken from definitions adopted by the National Bureau of Economic Research (NBER). The beginning date of each cycle refers to the trough of the cycle. The figures used in the paper depict the behavior of each labor-market indicator six quarters prior to the trough of the cycle and 32 quarters after the trough.
See U.S. Department of Labor (1998). Data on health insurance costs were obtained from unpublished estimates of the Bureau of Labor Statistics.
The last five business cycles and the average value of labor’s share over the cycle was: November 1970 to November 1973 (74.2); March 1975 to January 1980 (73.1); July 1980 to July 1981 (73.7); November 1982 to July 1990 (72.5); and the current cycle (71.7).
Readers interested in a comprehensive survey of the literature should refer to the articles published in the winter 1997 issue of the Journal of Economic Perspectives and Gordon (1998).
Labor’s share was estimated as the ratio of the compensation of employees to the revenue received by firms, the latter being equal to the value of output net of indirect taxes. See Rotemberg and Woodford (1997) for details.
Lipschitz and McDonald (1991) propose, in a different context, that comparing labor’s shares in value added across trading partners yields useful information about price competitiveness. They propose using a profit-based indicator of competitiveness based on real unit labor costs, i.e., labor’s share in valued added.
For example, on the unemployment gap variable, Hogan (1998) obtains a coefficient of about 0.26 and Staiger, Stock, and Watson (1996) obtain a coefficient between 0.22 and 0.41, depending on the specification.
Hogan uses a different Phillips curve specification as well as a different measure of the NAIRU. Therefore, the estimate of the effects of import prices appears to be very robust across different specifications.