The Cyclical Behavior of Average Labor Productivity

Average labor productivity is the amount of output per unit of labor input during a given period.

Output is often measured as real GDP, and labor input is measured in total hours worked.

So, it can be calculated as the quotient of the real GDP of an economy and the total number of hours worked.

Average labor productivity is often procyclical. It usually rises and falls with the business cycle.

During an expansion, businesses often buy more capital goods.

This helps workers complete tasks faster, allowing them to produce more in the same amount of time.

As a result, average labor productivity rises.

But businesses face declining sales during a contraction and may reduce production.

So, sometimes workers and equipment stay idle.

Fewer goods and services are produced in the same amount of time, leading to lower average labor productivity.

But workers may be laid off during a contraction. So, both output and labor hours may fall, making the effect on average labor productivity uncertain. As a result, some organizations do not closely link movements in average labor productivity to the business cycle. In terms of timing, this variable tends to lead the business cycle.