Hall has shown that, with perfect competition and price flexibility, total factor productivity measured using labor's share either in revenues or in costs will be acyclical regardless of the level of labor hoarding. We show that if firms producing a homogeneous good under constant returns must pick their prices before demand is known, both measures of productivity become procyclical. The model implies that productivity should be more procyclical the more important is labor hoarding. Empirically, productivity is more procyclical in industries and in nations where labor hoarding appears more important.

I. Introduction, 705.—II. The model, 707.—III. Tax incidence, 710.—IV. Conclusion, 715.

Using data from the United Nations Comparison Project and the Penn World Table, we find that machinery and equipment investment has a strong association with growth: over 1960–1985 each extra percent of GDP invested in equipment is associated with an increase in GDP growth of one third of a percentage point per year. This is a much stronger association than found between growth and any of the other components of investment. A variety of considerations suggest that this association is causal, that higher equipment investment drives faster growth, and that the social return to equipment investment in well-functioning market economies is on the order of 30 percent per year.

Modern neoclassical business cycle theories posit that the observed fluctuations in consumption and employment correspond to decisions of an optimizing representative individual. We estimate three first-order conditions that represent three tradeoffs faced by such an optimizing individual. He can trade off present for future consumption, present for future leisure, and present consumption for present leisure. The aggregate U. S. data lend no support to this model. The overidentifying restrictions are rejected, and the estimated utility function is often convex. Even when it is concave, the estimates imply that either consumption or leisure is an inferior good.