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

By John G. Fernald and J. Christina Wang

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.

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