American Economic Review: Vol. 104 No. 5 (May 2014)

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Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?

Article Citation

Gourio, François, and Leena Rudanko. 2014. "Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?" American Economic Review, 104(5): 183-88.

DOI: 10.1257/aer.104.5.183

Abstract

Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new evidence on cyclical variation in selling effort to discipline the exercise.

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Authors

Gourio, François (Federal Reserve Bank of Chicago)
Rudanko, Leena (Federal Reserve Bank of Philadelphia)

JEL Classifications

D92: Intertemporal Firm Choice: Investment, Capacity, and Financing
E13: General Aggregative Models: Neoclassical
E22: Capital; Investment; Capacity
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles


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