Does Variable Shift Work Explain Away Productivity Shocks? A Bayesian Approach

Abstract

Abstract In business cycle accounting, productivity is procyclical. However, this may be an illusion caused by improperly accounting for changes in procyclical capital utilization. This paper considers to what extent incorporating variable shift work into a dynamic stochastic general equilibrium model reduces the role played by productivity shocks in explaining variations in output. In the one shift version of the model, 81 percent of the variation in output is explained by productivity shocks. With variable shift work, the contribution falls to a minimum of 48 percent. While variable shift work decreases their importance, productivity shocks continue to be the most significant contributor to the variation of output over the business cycle.