How Biased are Measures of Cyclical Movements in Productivity and Hours?

20 Pages Posted: 18 Aug 2010

See all articles by Stephanie Aaronson

Stephanie Aaronson

Board of Governors of the Federal Reserve System

Andrew Figura

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section

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Abstract

The movement of hours worked over the business cycle is an important input into the estimation of many key parameters in macroeconomics. Unfortunately, the available data on hours do not correspond precisely to the concept required for accurate inference. We study one source of mismeasurement—that the most commonly used source data measure hours paid instead of hours worked. In particular, we focus our attention on salaried workers, a group for whom the gap between hours paid and hours worked is likely to be large. We show that the measurement gap varies significantly and positively with changes in labor demand. As a result, we estimate that the standard deviations of the workweek and of total hours worked are 27 and 5 percent larger, respectively, than published measures of hours suggest. We also find that this measurement gap is unlikely to be the source of the acceleration in published measures of productivity in the early 2000s.

Suggested Citation

Aaronson, Stephanie R. and Figura, Andrew, How Biased are Measures of Cyclical Movements in Productivity and Hours?. Review of Income and Wealth, Vol. 56, Issue 3, pp. 539-558, September 2010, Available at SSRN: https://ssrn.com/abstract=1660783 or http://dx.doi.org/10.1111/j.1475-4991.2010.00401.x

Stephanie R. Aaronson (Contact Author)

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Andrew Figura

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