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Labor Productivity: Structural Change and Cyclical Dynamics

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  • Martin Neil Baily
  • Eric J. Bartelsman
  • John Haltiwanger

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.

Suggested Citation

  • Martin Neil Baily & Eric J. Bartelsman & John Haltiwanger, 1996. "Labor Productivity: Structural Change and Cyclical Dynamics," NBER Working Papers 5503, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5503
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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