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Labor Productivity: Structural Change and Cyclical Dynamics

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  • Martin Neil Baily
  • Eric J. Bartelsman
  • John Haltiwanger

Abstract

A longstanding puzzle of empirical economics is that average labor productivity declines during recessions and increases during booms. This paper provides a framework to assess the empirical importance of competing hypotheses for explaining the observed procyclicality. For each competing hypothesis we derive the implications for cyclical productivity conditional on expectations of future demand and supply conditions. The novelty of the paper is that we exploit the tremendous heterogeneity in long-run structural changes across individual plants to identify the short-run sources of procyclical productivity. Our findings favor an adjustment cost model which involves a productivity penalty for downsizing as the largest source of procyclical labor productivity.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5503.

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Date of creation: Mar 1996
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Publication status: published as Baily, Martin Neil, Eric J. Bartelsman and John Haltiwanger. "Labor Productivity: Structural Change And The Cyclical Dynamics," Review of Economics and Statistics, 2001, v83(3,Aug), 420-433.
Handle: RePEc:nbr:nberwo:5503

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  1. Aizcorbe, Ana M, 1992. "Procyclical Labour Productivity, Increasing Returns to Labour and Labour Hoarding in Car Assembly Plant Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 102(413), pages 860-73, July.
  2. Bean, Charles R., 1990. "Endogenous growth and the procyclical behaviour of productivity," European Economic Review, Elsevier, vol. 34(2-3), pages 355-363, May.
  3. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
  4. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  5. Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  6. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 921-47, October.
  7. Saint-Paul, Gilles, 1993. "Productivity growth and the structure of the business cycle," European Economic Review, Elsevier, vol. 37(4), pages 861-883, May.
  8. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report, Federal Reserve Bank of Minneapolis 27, Federal Reserve Bank of Minneapolis.
  9. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-55, September.
  10. Shea, John, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 1-32, February.
  11. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1990. "Labor Hoarding and the Business Cycle," NBER Working Papers 3556, National Bureau of Economic Research, Inc.
  12. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 439-59, June.
  13. Caballero, Ricardo J & Engel, Eduardo M R A, 1993. "Microeconomic Adjustment Hazards and Aggregate Dynamics," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 359-83, May.
  14. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  15. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  16. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 70, pages 538.
  17. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
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