Book contents
- Frontmatter
- Contents
- Foreword by Robert M. Solow
- Preface
- Introduction
- PART ONE THE HISTORY, THEORY, AND MEASUREMENT OF PRODUCTIVITY GROWTH
- PART TWO INTERPRETING PRODUCTIVITY FLUCTUATIONS OVER THE BUSINESS CYCLE
- Part Two Introduction
- 7 Fresh Water, Salt Water, and Other Macroeconomic Elixirs
- 8 Are Procyclical Productivity Fluctuations a Figment of Measurement Error?
- 9 The Jobless Recovery: Does It Signal a New Era of Productivity-Led Growth?
- PART THREE THE THEORY OF THE INFLATION-UNEMPLOYMENT TRADEOFF
- PART FOUR EMPIRICAL STUDIES OF INFLATION DYNAMICS IN THE UNITED STATES
- Subject Index
- Author Index
- References
8 - Are Procyclical Productivity Fluctuations a Figment of Measurement Error?
Published online by Cambridge University Press: 10 December 2009
Foreword by
Book contents
- Frontmatter
- Contents
- Foreword by Robert M. Solow
- Preface
- Introduction
- PART ONE THE HISTORY, THEORY, AND MEASUREMENT OF PRODUCTIVITY GROWTH
- PART TWO INTERPRETING PRODUCTIVITY FLUCTUATIONS OVER THE BUSINESS CYCLE
- Part Two Introduction
- 7 Fresh Water, Salt Water, and Other Macroeconomic Elixirs
- 8 Are Procyclical Productivity Fluctuations a Figment of Measurement Error?
- 9 The Jobless Recovery: Does It Signal a New Era of Productivity-Led Growth?
- PART THREE THE THEORY OF THE INFLATION-UNEMPLOYMENT TRADEOFF
- PART FOUR EMPIRICAL STUDIES OF INFLATION DYNAMICS IN THE UNITED STATES
- Subject Index
- Author Index
- References
Summary
INTRODUCTION
Multifactor productivity (MFP), or “Solow's residual,” exhibits pronounced procyclical fluctuations in official data for the United States, Japan, and most other countries. These procyclical fluctuations have come to play a central role in recent macroeconomic debates. They provide the modus vivendum of the real business cycle (RBC) model, as well as the basis for Robert Hall's (1986, 1988) interpretation that the procyclicality of MFP demonstrates the existence of market power and/or increasing returns. They are also cited to support recent search models which demonstrate increasing returns in the form of “thick market externalities.”
Scattered through the literature of the past three decades are suggestions that the mismeasurement of output, capital input, or of labor input, might contribute to the observed procyclicality of MFP. However, each of these three mismeasurement sources was examined singly by different authors. This essay is the first to study the potential for all three sources of mismeasurement, interacting together, fully to explain the procyclicality of MFP.
The essay begins with a theoretical analysis that places the potential sources of mismeasurement in an explicit technological context. Part of the observed procyclicality of MFP may indeed be due to mismeasurement, but part may represent the overhead nature of some portion of both labor and capital, due to technological indivisibilities. We set out a model that allows separate roles for several cyclical phenomena that have often been confused in the literature on procyclical MFP, including labor hoarding, variable work effort, variable capital utilization, overhead labor, and overhead capital.
- Type
- Chapter
- Information
- Productivity Growth, Inflation, and UnemploymentThe Collected Essays of Robert J. Gordon, pp. 239 - 272Publisher: Cambridge University PressPrint publication year: 2003
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