Tatyana Deryugina (Twitter: @TDeryugina)

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On the third hand

Posted 14 Feb 10 by Tatyana

From my slowly-coming-together paper draft:

"The effect of capital shocks on the labor market is also ambiguous, even if population and prices are held constant. If the shock destroys capital that was held by consumers as a durable good (e.g. a house or a car), the marginal utility of consumption will rise relative to leisure and workers will increase their labor supply. The demand for the durable good will then increase as well, leading to higher demand for labor. On the other hand, if the shock destroys producer capital and labor and capital are complements in the production of a final good, then the marginal product of labor will fall and labor demand will decrease. On the third  hand, if some capital was used as an intermediate input in production of capital goods and the latter are destroyed, labor demand will increase.”

OK, I didn’t actually write "third hand” in the paper, but you get the idea.

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