How important is the intensive margin of labor adjustment?

Abstract

Using new quarterly data for hours worked in OECD countries, Ohanian and Ra¤o (2011) argue that in many OECD countries, particularly in Europe, hours per worker are quantitatively important as an intensive margin of labor adjustment, possibly because labor market frictions are higher than in the US. I argue that this conclusion is not supported by the data. Using the same data on hours worked, I …nd evidence that labor market frictions are higher in Europe than in the US, like Ohanian and Ra¤o, but also that these frictions seem to a¤ect the intensive margin at least as much as the extensive margin of labor adjustment.

Effects of social distancing policy on labor market outcomes

“…Institutions may play a vital role in how labor markets adjust during economic downturns. While there is considerable evidence that the policy environment in Europe, such as employment protection laws and collective bargaining mechanisms, increase intensive margin adjustments (changes in the hours worked/wages earned) during economic downturns ( Boeri et al, 2011 ; Merkl & Wesselbaum, 2011 ; Van Rens, 2012 ), a large body of literature, including recent studies of the 2008–2009 Great Recession, agrees that the extensive margin adjustments dominate intensive margin adjustments during recessions or following natural disasters in the US ( Elsby et al, 2010 ; Ohanian & Raffo, 2012 ; Zissimopoulos & Karoly, 2010 ). The ability of workers to access unemployment insurance only in case of complete job-separation, and more generous unemployment benefits due to the CARES Act during the COVID-19 recession ( Marinescu et al, 2020 ), are likely to encourage employers and workers to continue to opt for complete job-separation over reduced work hours in the pandemic downturn.…”