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Unemployment, the Variability of Hours, and the Persistence of "Disturbances": A Private Information Approach

Bruce D. Smith
International Economic Review
Vol. 30, No. 4 (Nov., 1989), pp. 921-938
DOI: 10.2307/2526759
Stable URL: http://www.jstor.org/stable/2526759
Page Count: 18
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Unemployment, the Variability of Hours, and the Persistence of "Disturbances": A Private Information Approach
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Abstract

A real business cycle model is developed in which the workforce is heterogeneous. Workers are privately informed about their own productive abilities. It is shown that the presence of private information creates a mechanism for enhancing the variability of hours worked, as well as "channels of persistence." Moreover, aggregate hours worked can respond strongly to variations in average productivity (real wages), even though observed responses of hours worked to real wage movements are small for all individuals in the model.

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