Average work hours as a leading economic variable in US manufacturing industries

This paper examines the role of the average workweek as a leading indicator of output and employment in US manufacturing industries. A separate VAR system is estimated for the aggregate, durable, and non-durable manufacturing sectors as well as for 16 of the 20 two-digit SIC detailed manufacturing industries. Each VAR system is comprised of hours, employment, output, and real wages for that sector or industry. Tests conducted for structural change show a structural break occurred after the late 1970s. Granger causality tests and impulse response analysis show that the impact of a given change in average hours on employment and output weakened considerably after the structural break point in 1979. Our results imply that the average workweek in US manufacturing has become less associated with the entire business cycle in both output and employment.