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

John Fernald () and J. Christina Wang

Annual Review of Economics, 2016, vol. 8, issue 1, 465-496

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.

Keywords: procyclical productivity; labor hoarding; business cycles; growth accounting; DSGE models (search for similar items in EconPapers)
JEL-codes: E23 E22 E32 O47 (search for similar items in EconPapers)
Date: 2016
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