Working Paper: CEPR ID: DP5501
Authors: Robert Inklaar
Abstract: This paper studies procyclical productivity growth at the industry level in the U.S. and in three European countries (France, Germany and the Netherlands). Industry-specific demand-side instruments are used to examine the prevalence of non-constant returns to scale and unmeasured input utilization. For the aggregate U.S. economy, unmeasured input utilization seems to explain procyclical productivity. However, this correction still leaves one in three U.S. industries with procyclical productivity. This failure of the model can also be seen in Europe and is mostly concentrated in services industries.
Keywords: cyclical productivity; input utilization; instrumental variables; returns to scale
JEL Codes: D24; E32; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| model limitations (C51) | procyclical productivity growth (O49) |
| unmeasured input utilization (C67) | procyclical productivity growth (O49) |
| returns to scale (D24) | productivity growth (O49) |
| growth of average hours worked (J29) | returns to scale (D24) |
| unmeasured input utilization (hours worked per person) (E23) | procyclical productivity (in Europe and service industries) (O49) |
| industry-specific instruments (L64) | reduction of weak instrument bias (C26) |