Procyclical Productivity: Increasing Returns or Cyclical Utilization?
AbstractIt has long been argued that cyclical fluctuations in labor and capital utilization and the presence of overhead labor and capital are important for explaining procyclical productivity. Here I present two simple and direct tests of these hypotheses, and a way of measuring the relative importance of these two explanations. The intuition behind the paper is that materials input is likely to be measured with less cyclical error than labor and capital input, and materials are likely to be used in strict proportion to value added. In that case, materials growth provides a good measure of the unobserved changes in capital and labor input. Using this measure, I find that the true growth of variable labor and capital inputs is, on average, almost twice the measured change in the capital stock or labor hours. More than half of that is caused by the presence of overhead inputs in production; the rest is due to cyclical factor utilization.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5336.
Date of creation: Nov 1995
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Publication status: published as Quarterly Journal of Economics, vol. 111, no. 3, pp. 719-751, August 1996.
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Other versions of this item:
- Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 719-51, August.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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