The Labor Productivity Puzzle

Prior to the mid-1980s, labor productivity growth was a useful barometer of the U.S. economys performance:it was low during economic recessions and high during expansions. Since then, labor productivityhas become significantly less procyclical. In the recent recession of 20082009, labor productivity actuallyrose as GDP plummeted. These facts have motivated the development of new business cycle theoriesbecause the conventional view is that they are inconsistent with existing business cycle theory. In thispaper, we analyze recent events with existing theory and find that the labor productivity puzzle is muchless of a puzzle than previously thought. In light of these findings, we argue that policy agendas arisingfrom new untested theories should be disregarded.