Retrospectives: The Cyclical Behavior of Labor Productivity and the Emergence of the Labor Hoarding Concept

Abstract

The concept of “labor hoarding,” at least in its modern form, was first fully articulated in the early 1960s by Arthur Okun (1963). By the end of the 20th century, the concept of “labor hoarding” had become an accepted part of economists' explanations of the workings of labor markets and of the relationship between labor productivity and economic fluctuations. The emergence of this concept involved the conjunction of three key elements: the fact that measured labor productivity was found to be procyclical, rising during expansions and falling during contractions; a perceived contradiction with the theory of the neoclassical firm in a competitive economy; and a possible explanation based on optimizing behavior on the part of firms. Each of these three elements—fact, contradiction, and explanation—has a history of its own, dating back to at least the opening decades of the twentieth century. Telling the story of the emergence of the modern labor hoarding concept requires recounting these three histories, histories that involve the work of economists motivated by diverse purposes and often not mainly, if at all, concerned with the questions that the labor hoarding concept was ultimately used to address. As a final twist to the story, the long-standing positive relationship between labor productivity and output in the US economy began to disappear in the late 1980s; and during the Great Recession, labor productivity rose while the economy contracted.