Why Has the Cyclicality of Productivity Changed? What Does it Mean?

Posted: 18 Nov 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: October 2016

Abstract

US labor and total factor productivity have historically been procyclical — rising in booms and falling in recessions. After the mid-1980s, however, total factor productivity 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 all play key roles.

Suggested Citation

Fernald, John G. and Wang, J. Christina, Why Has the Cyclicality of Productivity Changed? What Does it Mean? (October 2016). Annual Review of Economics, Vol. 8, pp. 465-496, 2016. Available at SSRN: https://ssrn.com/abstract=2870840 or http://dx.doi.org/10.1146/annurev-economics-080315-015018

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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