LABOR HOARDING AND THE BUSINESS-CYCLE

The puzzle of procyclical labor productivity occupies an important pos ition in the debate over Real Business Cycle Theory. Real Business Cyc le proponents attribute it to procyclical technology shocks, opponents to ''labor hoarding''-retention during recessions of workers not need ed for current production, thus downwardly biasing productivity measur ements. This paper uses a model featuring heterogeneous industries to illustrate that the conventional presumption of counter-cyclical aggre gate labor hoarding generating procyclical productivity measurements i s not necessarily well grounded in theory.