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

53 Pages Posted: 1 Jan 2016

See all articles by John G. Fernald

John G. Fernald

Federal Reserve Bank of San Francisco

J. Christina Wang

Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-10-01


Historically, U.S. labor productivity (output per hour) and total factor productivity (TFP) rose in booms and fell in recessions. Different models of business cycles explain this procyclicality differently. Traditional Keynesian models relied on "factor hoarding," that is, variations in how intensively labor and capital were utilized over the business cycle. Real business cycle (RBC) models instead posit that procyclical technology shocks drive the business cycle. Since the mid-1980s, however, the procyclicality of productivity has waned. TFP has been roughly acyclical with respect to inputs, whereas labor productivity has become significantly countercyclical. The slow pace of productivity growth after 2010, when the post-Great Recession recovery gained a firm footing, is broadly consistent with these patterns. In this paper, the authors seek to understand empirically the forces behind the changing cyclicality of productivity.

Keywords: procyclical productivity, labor hoarding, business cycles, growth-accounting, DSGE models

JEL Classification: E22, E23, E32, O47

Suggested Citation

Fernald, John G. and Wang, J. Christina, Why Has the Cyclicality of Productivity Changed?: What Does It Mean? (2015-10-01). Federal Reserve Bank of Boston Research Paper Series Current Policy Perspectives Paper No. 15-6. Available at SSRN: https://ssrn.com/abstract=2709919

John G. Fernald (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-2135 (Phone)

HOME PAGE: http://www.frbsf.org/economics/economists/jfernald.html

J. Christina Wang

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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