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The Labor Productivity Puzzle

In: Government Policies and the Delayed Economic Recovery

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  • Ellen R. McGrattan
  • Edward C. Prescott

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.

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This chapter was published in:

  • Lee E. Ohanian & John B. Taylor & Ian J. Wright (ed.), 2012. "Government Policies and the Delayed Economic Recovery," Books, Hoover Institution, Stanford University, number 6.
    This item is provided by Hoover Institution, Stanford University in its series Book Chapters with number 6-6.

    Handle: RePEc:hoo:bookch:6-6

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    1. Charles R. Hulten, 2010. "Decoding Microsoft: Intangible Capital as a Source of Company Growth," NBER Working Papers 15799, National Bureau of Economic Research, Inc.
    2. Galí, Jordi & van Rens, Thijs, 2010. "The Vanishing Procyclicality of Labor Productivity," IZA Discussion Papers 5099, Institute for the Study of Labor (IZA).
    3. Casey B. Mulligan, 2011. "Rising Labor Productivity during the 2008-9 Recession," NBER Working Papers 17584, National Bureau of Economic Research, Inc.
    4. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really Uncertain Business Cycles," CEP Discussion Papers dp1195, Centre for Economic Performance, LSE.
    5. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    7. Lee E. Ohanian & Andrea Raffo, 2011. "Aggregate Hours Worked in OECD Countries: New Measurement and Implications for Business Cycles," NBER Working Papers 17420, National Bureau of Economic Research, Inc.
    8. Carol Corrado & John Haltiwanger & Dan Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1.
    9. Eric Sims & Michael Jason Pries, 2011. "Reallocation and the Changing Nature of Economic Fluctuations," 2011 Meeting Papers 1258, Society for Economic Dynamics.
    10. Lee E. Ohanian, 2010. "The Economic Crisis from a Neoclassical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 45-66, Fall.
    11. Anton Braun, R., 1994. "Tax disturbances and real economic activity in the postwar United States," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 441-462, June.
    12. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Introduction to "Measuring Capital in the New Economy"," NBER Chapters, in: Measuring Capital in the New Economy, pages 1-10 National Bureau of Economic Research, Inc.
    13. David Berger, 2012. "Countercyclical Restructuring and Jobless Recoveries," 2012 Meeting Papers 1179, Society for Economic Dynamics.
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