Interpreting the Procyclical Productivity of Manufacturing Sectors: External Effects or Labor Hoarding?

JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 29, No. 1, February 1997

Posted: 2 Oct 1996

Abstract

This paper investigates whether procyclical productivity is due to cyclical variations in the rate of utilization of labor or to technological externalities. By looking at the relation between sectoral productivity and the level of aggregate activity, empirical evidence is presented to distinguish the two hypotheses. Analysis of two-digit U.S. manufacturing industries shows that sectoral productivity is more closely related to the rate of change of aggregate activity than to its level. This result is consistent with the interpretation that cyclical productivity is due to cyclical variations in the rate of utilization of labor, which responds to expected future industry conditions. Aggregate variables in production-function regressions have therefore the role of forecasting variables for future industry conditions.

JEL Classification: D24, E32

Suggested Citation

Sbordone, Argia M., Interpreting the Procyclical Productivity of Manufacturing Sectors: External Effects or Labor Hoarding?. JOURNAL OF MONEY, CREDIT, AND BANKING, Vol. 29, No. 1, February 1997, Available at SSRN: https://ssrn.com/abstract=3370

Argia M. Sbordone (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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