Quality hours: Measuring labor input

Abstract

We construct an aggregate labor input series from 1979 to 2019 to adjust for changes in the experience and education levels of the workforce using the Current Population Survey’s Outgoing Rotation Groups. We compare the cyclical behavior of labor input to aggregate hours — finding that labor input is about 9% less volatile over the business cycle and that the quality of the workforce is countercyclical. We show that the decrease in labor productivity beginning in 2004, the “productivity slowdown,” is understated by 12 percentage points when using aggregate hours instead of labor input to calculate productivity, as compared to the 1990–2003 growth rate. Moreover, 39% of the average quarterly growth rate of labor productivity can be attributed to increases in education and experience since 2004.