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Why has the cyclicality of productivity changed? What does it mean?

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U.S. labor and total factor productivity have historically been procyclical—rising in booms and falling in recessions. After the mid-1980s, however, TFP 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 appear to play key roles.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2016-7.

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Length: 54 pages
Date of creation: 01 Apr 2016
Handle: RePEc:fip:fedfwp:2016-07
DOI: 10.24148/wp2016-07
Note: This version: December 2015
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