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Annual Review of Economics

Volume 8, 2016

Why Has the Cyclicality of Productivity Changed? What Does It Mean?

Abstract

US labor and total factor productivity have historically been procyclical—rising in booms and falling in recessions. After the mid-1980s, however, total factor productivity became much less procyclical with respect to hours while labor productivity turned strongly countercyclical. We find that the key empirical “fact” driving these changes is reduced variation in factor utilization—conceptually, the workweek of capital and labor effort. We discuss a range of theories that seek to explain the changes in productivity's cyclicality. Increased flexibility, changes in the structure of the economy, and shifts in relative variances of technology and “demand” shocks all play key roles.

Keyword(s): business cycles, DSGE models, growth accounting, labor hoarding, procyclical productivity
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2016-10-31
2024-05-06
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Why Has the Cyclicality of Productivity Changed? What Does It Mean?
Annual Review of Economics 8, 465 (2016); https://doi.org/10.1146/annurev-economics-080315-015018
/content/journals/10.1146/annurev-economics-080315-015018
/content/journals/10.1146/annurev-economics-080315-015018
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