Seasonal Solow Residuals and Christmas: A Case for Labor Hoarding and Increasing Returns

Journal of Money, Credit and Banking, Vol. 30, No. 3, Part 1, August 1998

Posted: 4 Sep 1998

See all articles by R. Anton Braun

R. Anton Braun

University of Tokyo - Faculty of Economics

Charles L. Evans

Federal Reserve Bank of Chicago - Research Department

Abstract

In aggregate unadjusted data, measured Solow residuals exhibit large seasonal variations. Total Factor Productivity grows rapidly in the fourth quarter at an annual rate of 16 percent and regresses sharply in the first quarter at an annual rate of -24 percent. This paper considers two potential explanations for the measured seasonal variation in the Solow residual: labor hoarding and increasing returns to scale. Using a specification that allows for no exogenous seasonal variation in technology and a single seasonal demand shift in the fourth quarter, we ask the following question: How much of the total seasonal variation in the measured Solow residual can be explained by Christmas? The answer to this question is surprising. With increasing returns and time varying labor effort, Christmas is sufficient to explain the seasonal variation in the Solow residual, consumption, average productivity, and output in all four quarters. Our analysis of seasonally unadjusted data uncovers important roles for labor hoarding and increasing returns which are difficult to identify in adjusted data.

JEL Classification: E20, E23

Suggested Citation

Braun, R. Anton and Evans, Charles L., Seasonal Solow Residuals and Christmas: A Case for Labor Hoarding and Increasing Returns. Journal of Money, Credit and Banking, Vol. 30, No. 3, Part 1, August 1998. Available at SSRN: https://ssrn.com/abstract=108608

R. Anton Braun

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Charles L. Evans (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
P.O. Box 834
Chicago, IL 60604-1413
United States
312-322-5812 (Phone)
312-322-2357 (Fax)

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