The Labor Productivity Puzzle

Edward Prescott and Ellen McGrattan

No 644, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: Prior to the mid-1980s, labor productivity growth was a useful barometer of the U.S. economy's performance: it was low during economic recessions and high during expansions. Since then, labor productivity has become significantly less procyclical. In the recent recession of 2008-2009, labor productivity actually rose as GDP plummeted. These facts have motivated the development of new business cycle theories because the conventional view is that they are inconsistent with existing business cycle theory. In this paper, we analyze recent events with existing theory and find that the labor productivity puzzle is much less of a puzzle than previously thought. In light of these findings, we argue that policy agendas arising from new untested theories should be disregarded.

Date: 2012
New Economics Papers: this item is included in nep-dge, nep-eff and nep-lab
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Citations: View citations in EconPapers (44)

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Chapter: The Labor Productivity Puzzle (2012)
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