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

Author

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  • John G. Fernald

    (Economic Research Department, Federal Reserve Bank of San Francisco, San Francisco, California 94105)

  • J. Christina Wang

    (Research Department, Federal Reserve Bank of Boston, Boston, Massachusetts 02210)

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.

Suggested Citation

  • John G. Fernald & J. Christina Wang, 2016. "Why Has the Cyclicality of Productivity Changed? What Does It Mean?," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 465-496, October.
    • Handle: RePEc:anr:reveco:v:8:y:2016:p:465-496
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    File URL: http://www.annualreviews.org/doi/10.1146/annurev-economics-080315-015018
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    More about this item

    Keywords

    procyclical productivity; labor hoarding; business cycles; growth accounting; DSGE models;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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