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Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries

  • Bernanke, Ben S
  • Parkinson, Martin L

The authors study the phenomenon of short-run increasing returns to labor (SRIRL) in a sample of ten interwar U.S. manufacturing industries. Their authors main findings are that SRIRL was common in the interwar period and that the pattern of SRIRL across industries was similar to that observed in the postwar period. The authors argue that, since presumably the Depression was not caused by technical regress, these findings are inconsistent with the claim of real business cycle theorists that SRIRL are, in general, due to procyclical technological shocks. They propose tests for discriminating between two other leading explanations of SRIRL, but find that their conclusions differ by industry. Copyright 1991 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 99 (1991)
Issue (Month): 3 (June)
Pages: 439-59

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Handle: RePEc:ucp:jpolec:v:99:y:1991:i:3:p:439-59
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  1. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  2. Ricardo J. Caballero & Richard K. Lyons, 1989. "The Role of External Economies in U.S. Manufacturing," NBER Working Papers 3033, National Bureau of Economic Research, Inc.
  3. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1989. "Building Blocks of Market Clearing Business Cycle Models," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 247-302 National Bureau of Economic Research, Inc.
  4. Hunter, Helen Manning, 1982. "The Role of Business Liquidity During the Great Depression and Afterwards: Differences Between Large and Small Firms," The Journal of Economic History, Cambridge University Press, vol. 42(04), pages 883-902, December.
  5. 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.
  6. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  7. Daniel Creamer & Sergei Dobrovolsky & Israel Borenstein, 1960. "Capital in Manufacturing and Mining: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number crea60-1.
  8. Wooldridge, Jeffrey M., 1989. "A computationally simple heteroskedasticity and serial correlation robust standard error for the linear regression model," Economics Letters, Elsevier, vol. 31(3), pages 239-243, December.
  9. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  10. Robert S. Chirinko, 1993. "Non-convexities, labor hoarding, technology shocks, and procyclical productivity: a structural econometric approach," Research Working Paper 93-08, Federal Reserve Bank of Kansas City.
  11. Christopher A. Sims, 1974. "Output and Labor Input in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(3), pages 695-736.
  12. Julio J. Rotemberg & Lawrence H. Summers, 1988. "Labor Hoarding, Inflexible Prices, and Procyclical Productivity," NBER Working Papers 2591, National Bureau of Economic Research, Inc.
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