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

28 Pages Posted: 5 Sep 2006

See all articles by Andrew Figura

Andrew Figura

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

Stephanie Aaronson

Board of Governors of the Federal Reserve System

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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 - focusing our attention on salaried workers, a group for whom the gap between hours paid and hours worked is likely particularly 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 25 and 6 percent larger, respectively, than standard measures of hours suggest. We also find that this measurement gap is an unlikely source of the acceleration in published measures of productivity since 2000.

Keywords: Salaried workers, workweek, cyclical movements in hours worked

JEL Classification: E01, J23

Suggested Citation

Figura, Andrew and Aaronson, Stephanie R., How Biased are Measures of Cyclical Movements in Productivity and Hours?. FEDS Discussion Paper No. 2005-38, Available at SSRN: https://ssrn.com/abstract=825631

Andrew Figura (Contact Author)

Board of Governors of the Federal Reserve System - Macroeconomic Analysis Section ( email )

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Stephanie R. Aaronson

Board of Governors of the Federal Reserve System ( email )

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