Labor Productivity in Britain and America During the Nineteenth Century

A number of writers have recently questioned whether labor productivity or per capita incomes were ever higher in the United Kingdom than in the United States. We show that although the United States already had a substantial labor productivity lead in industry as early as 1840, especially in manufacturing, labor productivity was broadly equal in the two countries in agriculture, while the United Kingdom was ahead in services. Hence aggregate labor productivity was higher in the United Kingdom, particularly since the United States had a larger share of the labor force in low value-added agriculture. U.S. overtaking occurred decisively only during the 1890s, as labor productivity pulled ahead in services and the share of agricultural employment declined substantially. Labor force participation was lower in the United States, so that the United Kingdom's labor productivity advantage in the mid-nineteenth century translated into a larger per capita income lead.

What Can Labor Productivity Tell Us About the U.S. Economy?

[Excerpt] This issue of Beyond the Numbers focuses on labor productivity and the corresponding changes in output and labor hours data in the context of historical and business cycle periods; a case study of the Great Recession of 2007 to 2009 is provided as an example of using labor productivity data to analyze cyclical changes in an economy

The Role of the Structural Transformation in Aggregate Productivity

We investigate the role of sectoral differences in labor productivity and the process of structural transformation (the secular reallocation of labor across sectors) in accounting for the time path of aggregate productivity across countries. Using a simple model of the structural transformation that is calibrated to the growth experience of the United States, we measure sectoral labor productivity differences across countries. These differences are large and systematic: labor productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing. When fed into the model, these sectoral labor productivity differences and the structural transformation they produce account for more than 50 percent of the fast catch-up in aggregate productivity observed in less developed economies and all of the stagnation and decline observed in more developed economies in recent decades.labor productivity, structural transformation, sectoral productivity, employment, hours, cross-country data

Indian manufacturing : a slow sector in a rapidly growing economy

This paper investigates the determinants of productivity in Indian manufacturing industries during the period 1988-2000. Using two-digit industry level data for the Indian states, we find evidence of imperfect interindustry and interstate labor mobility as well as misallocation of resources across industries and states. Trade liberalization increases productivity in all industries across all states, and productivity is higher in the less protected industries. These effects of protection and trade liberalization are more pronounced in states that have relatively more flexible labor markets. Similar effects are also found in the case of employment, capital stock and investment. Furthermore, labor market flexibility, independent of other policies, has a positive effect on productivity. Importantly, per capita state development expenditure seems to be the strongest and the most robust predictor of productivity, employment, capital stock and investment. Industrial delicensing increases both labor productivity and employment but only in the states with flexible labor market institutions. Even after controlling for delicensing, the analysis shows that trade liberalization has a productivity-enhancing effect. Finally, trade liberalization benefits most the export-oriented industries located in states with flexible labor-market institutions.Economic Theory&Research,Labor Markets,Markets and Market Access,Free Trade,Economic Growth

Labor Productivity: Developments Since 1995

[Excerpt] The paper also explores the reasons for the productivity acceleration and concludes that it likely stemmed from developments in the information technology (IT) sector, including faster technological change in the production of IT goods and the boom in business investment in those goods. Although widely accepted, that explanation raises two questions: Why did productivity growth accelerate further during a period—the years since the 2001 business-cycle peak—when IT investment fell substantially? And why did European economies fail to experience a similar productivity surge even though they had access to the same IT goods that were available in the United States? The paper outlines several possible answers to those questions but concludes that further research will be necessary before economists can provide a consensus answer

Working Capital Requirement and the Unemployment Volatility Puzzle

Shimer (2005) argues that a search and matching model of the labor market in which wage is determined by Nash bargaining cannot generate the observed volatility in unemployment and vacancy in response to reasonable labor productivity shocks. This paper examines how incorporating monopolistically competitive firms with a working capital requirement (in which firms borrow funds to pay their wage bills) improves the ability of the search models to match the empirical fluctuations in unemployment and vacancy without resorting to an alternative wage setting mechanism. The monetary authority follows an interest rate rule in the model. A positive labor productivity shock lowers the real marginal cost of production and lowers inflation. In response to the fall in price level, the monetary authority reduces the nominal interest rate. A lower interest rate reduces the cost of financing and partially offsets the increase in labor cost from a higher productivity. A reduced labor cost implies the firms retain a greater portion of the gain from a productivity shock, which gives them a greater incentive to create vacancies. Simulations show that a working capital requirement does indeed improve the ability of the search models to generate fluctuations in key labor market variables to better match the U.S. data

Are we in a productivity boom? Evidence from multifactor productivity growth

Increased productivity could be the key to preserving robust, noninflationary GDP growth. But what is the best measure of productivity? This Economic Commentary explores the relationship between labor productivity and multifactor productivity, a measure that accounts for factors other than technological improvement. It concludes that MFP provides a better measure of productivity due solely to technical change.Productivity ; Technology ; Labor productivity

Why have the dynamics of labor productivity changed?

The strength of the nascent economic recovery--and of the labor market--will depend importantly on labor productivity. By itself, faster productivity growth contributes to faster output growth. At the same time, stronger productivity gains allow firms to increase output without adding workers. Some analysts believe that faster productivity growth contributed to the “jobless recoveries” after the 1990-91 and 2001 recessions. ; In recent years, the U.S. economy has undergone a change in the behavior of productivity over the business cycle. Until the mid-1980s, productivity growth rose and fell with output growth. But since then the relationship between these two variables has weakened, and they have even moved in different directions. ; Fluctuations in productivity depend on two factors: the mix of shocks that drive the business cycle and the transmission of those shocks to output and labor market activity. Thus, two hypotheses stand out as plausible explanations for the change in the cyclical behavior of productivity. First, a decline in the importance of supply shocks for the business cycle may have changed the relationship of productivity and output over the business cycle. Second, structural changes in the labor market may have altered the transmission of shocks to the labor market and production. Specifically, a different labor market environment may have prompted firms to modify the way they meet their labor needs in response to shocks to the economy. ; Van Zandweghe examines the shift in the behavior of labor productivity over the business cycle and assesses the supply shock and structural change explanations for the shift. He finds that the importance of supply shocks in the business cycle has been stable over time. However, the behavior of productivity over the business cycle has shifted in response to both supply and demand shocks. Together, these results imply the shift in the business cycle behavior of productivity is most likely the result of structural changes in the labor market.

What Does It Take to Explain Procyclical Productivity

Labor productivity comoves strongly with output, leads output and employment, and is only weakly correlated with employment at the businesscycle frequency. Procyclical productivity is observed in virtually all countries and industries, and it is observed at both the business-cycle frequency and the seasonal frequency. Such prominent features of economic °uctuations present a litmus test for business cycle theory. The conventional explanations for procyclical labor productivity are factor hoarding (labor hoarding and capacity utilization) or increasing returns to scale. Existing equilibrium-business cycle theory explain procyclical labor productivity by technology shocks. The sheer magnitude of excess volatilities in productivity relative to employment seems to defy explanations from increasing returns alone. The technology-shock explanation, on the other hand, comes perilously close to assuming the conclusion. Furthermore, even in periods of pure demand shocks, labor productivity remains procyclical. Applying general equilibrium theory, this paper shows that neither technology shocks nor increasing returns to scale are necessary for understanding procyclical productivity. Factor hoarding is su±cient for demand shocks to induce procyclical productivity at both aggregate and disaggregate levels despite constant or even diminishing returns to scale.