Okun’s Macroscope: Changes in the Cyclical Behavior of Productivity and the Comovement between Output and Unemployment

We document sizeable changes over time and across countries in the comovement of output and unemployment over the business cycle. To a large extent, these changes reflect the evolving cyclical behavior of labor productivity (output per hour worked). For the typical country, productivity shifted from procyclical to countercyclical in the decades prior to 2007, but has since become procyclical once again. We also find, in general, that productivity is more procyclical during recessions than in normal times. We develop a production-theory framework to interpret these empirical results. The theory, together with the empirical results, sheds light on the similarities and differences over time and across countries in the underlying dynamics of how firms and households use various margins of adjustment. For the United States, much of the time-series variation in the cyclicality of productivity reflects variation in the use of the “utilization†margin (e.g., labor hoarding). Our results provide insight into desirable features of macro models that seek to match labor-market facts.