Labor Productivity: Structural Change and Cyclical Dynamics / Martin Neil Baily, Eric J. Bartelsman, John Haltiwanger.

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Baily, Martin Neil

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5503.Publication details: Cambridge, Mass. National Bureau of Economic Research 1996.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: A longstanding puzzle of empirical economics is that average labor productivity declines during recessions and increases during booms. This paper provides a framework to assess the empirical importance of competing hypotheses for explaining the observed procyclicality. For each competing hypothesis we derive the implications for cyclical productivity conditional on expectations of future demand and supply conditions. The novelty of the paper is that we exploit the tremendous heterogeneity in long-run structural changes across individual plants to identify the short-run sources of procyclical productivity. Our findings favor an adjustment cost model which involves a productivity penalty for downsizing as the largest source of procyclical labor productivity.

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Previous	nber w5500 Implied Volatility Functions: Empirical Tests /	nber w5501 Estimating the Productivity of Research and Development: An Exploration of GMM Methods Using Data on French & United States Manufacturing Firms /	nber w5502 Reflections on Ricardian Equivalence /	nber w5503 Labor Productivity: Structural Change and Cyclical Dynamics /	nber w5504 Adoption of Financial Technologies: Implications for Money Demand and Monetary Policy /	nber w5505 Technical Trading Rule Profitability and Foreign Exchange Intervention /	nber w5506 R&D, Production Structure and Productivity Growth: A Comparison of the US, Japanese and Korean Manufacturing Sectors /	Next

March 1996.

A longstanding puzzle of empirical economics is that average labor productivity declines during recessions and increases during booms. This paper provides a framework to assess the empirical importance of competing hypotheses for explaining the observed procyclicality. For each competing hypothesis we derive the implications for cyclical productivity conditional on expectations of future demand and supply conditions. The novelty of the paper is that we exploit the tremendous heterogeneity in long-run structural changes across individual plants to identify the short-run sources of procyclical productivity. Our findings favor an adjustment cost model which involves a productivity penalty for downsizing as the largest source of procyclical labor productivity.