Working Papers

2009

 

September 2009, No. 09-12R

The Cyclicality of the User Cost of Labor (Revised: March 2013)

Marianna Kudlyak

The user cost of labor is the expected difference between the present discounted value of wages paid to a worker hired in the current period and that paid to a worker hired in the next period. Analogously to the price of any long-term asset, the user cost, not wage, is the relevant price for a firm that is considering adding a worker. I construct its counterpart in the data and estimate that it is substantially more procyclical than average wages or wages of newly-hired workers. I demonstrate an application of the finding using the textbook search and matching model.

(Note: This paper was previously posted under the title "The Cyclicality of the User Cost of Labor with Search and Matching.")

Contact Us

Richmond

Lisa Kenney
(804) 697-8179