Verdoorn’s law refers to a statistical relationship between the long-run growth rate of labour productivity and the growth rate of output, usually for the manufacturing sector. Since the sixties this relationship has been examined in a large number of studies using a wide variety of data sets and employing different econometric models. This paper is based on a time series analysis and formulates the law in terms of cointegration and Granger-causality between manufacturing output and labour productivity. Quarterly U.S. data for 1987-2007 is used to test the pattern implied by the law. Results show that manufacturing production and labour productivity are variables that are integrated of order (1,1), and are also cointegrated. The impulse response function shows that a shock on one variable has a positive impact on the other variables.
ISSN: 1792-7552 (Online)