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

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 k...

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Bibliographic Details
Published in:Annual review of economics 2016-01, Vol.8 (1), p.465-496
Main Authors: Fernald, John G, Wang, J. Christina
Format: Article
Language:English
Subjects:
business cycles
DSGE models
Economic history
growth accounting
Labor economics
labor hoarding
Labor productivity
procyclical productivity
Productivity
Public policy
Recessions
Studies
Technological change
Working hours
Workweeks
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Summary: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.
ISSN:1941-1383
1941-1391
DOI:10.1146/annurev-economics-080315-015018