The behaviour of productivity growth rates and price-cost margins during contractions and expansions

Daniel Ryan

Applied Economics, 1997, vol. 29, issue 7, 889-893

Abstract: Panel data on thirteen two-digit US manufacturing industries were analysed using a random coefficients approach to determine the behaviour of total factor productivity growth rates and price—marginal cost ratios during recessions and expansions. Results show: (1) productivity growth is procyclical—it decreases during recessions and increases during expansions. In addition, the decrease during recessions is greater than the increase during expansions; (2) the price-marginal cost ratio is very asymmetric — it decreases during recessions but shows no significant movement during an expansion. The lower price-marginal cost ratio during a recession implies that the elasticity of output with respect to labour decreases. Thus not only does the level of productivity fall, but the productivity of labour relative to capital also falls. These characteristics are consistent with labour hoarding.

Date: 1997
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DOI: 10.1080/000368497326543

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