The Shift from Procyclical to Countercyclical Productivity in the American Business Cycle
Between the end of World War II and the late 1980s, times when unemployment rose were times when productivity growth was relatively low--and as the economy came out of the depths of the recession productivity growth would accelerate.
Since 1990, times when unemployment rates have risen have been times when productivity growth is relatively high--and as the economy comes out of the depths of the recession productivity growth tends to drop:
This shift does, I think, pose a big problem for Austrian and other real supply as opposed to demand side theories of the business cycle. In the depths of recent recessions unemployment is not high because labor productivity is low relative to trend. In the depths of recent recessions unemployment is high in spite of the fact that labor productivity is high relative to trend. Were it not for the shortage of demand, firms would want to employ not fewer but rather more workers at the trough than they had employed at the peak.
But because of the shortage of demand the new firms that could employ the unemployed profitably if only demand were normal do not exist. And because of the shortage of demand the firms that will expand and profitably employ the unemployed when demand returns to normal do not yet know who they are.
