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The Labor Productivity Puzzle

  • Edward Prescott

    (Federal Reserve Bank of Minneapolis)

  • Ellen McGrattan

    (Federal Reserve Bank of Minneapolis)

Prior to the mid-1980s, labor productivity growth was a useful barometer of the U.S. economy's performance: it was low during economic recessions and high during expansions. Since then, labor productivity has become significantly less procyclical. In the recent recession of 2008-2009, labor productivity actually rose as GDP plummeted. These facts have motivated the development of new business cycle theories because the conventional view is that they are inconsistent with existing business cycle theory. In this paper, we analyze recent events with existing theory and find that the labor productivity puzzle is much less of a puzzle than previously thought. In light of these findings, we argue that policy agendas arising from new untested theories should be disregarded.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 644.

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Date of creation: 2012
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Handle: RePEc:red:sed012:644
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