Output and Labor Input in Manufacturing

Abstract

THE RELATION between output and labor input in manufacturing is important in quantitative analysis of economic fluctuations.Empirical work on this topic generally supports the conclusion that labor inputs respond with a delay, and not in full proportion, to changes in output.Thus, variations in output are accompanied by corresponding variations in average labor productivity.This phenomenon is something of a paradox, for shortrun increasing returns to labor, or SRIRL, are difficult to rationalize if the sector being explained is assumed to operate on a static production function in which labor is the most variable factor.One need not make this assumption, and a variety of plausible deviations from it, which can explain the qualitative empirical results, have been advanced.It also seems possible that some of the apparent SRIRL reported in previous studies reflects statistical bias in estimating the labor-output relation.