<p>"Normal" in this context means "trend" (usually a simple linear trend, but in principle could be a non-linear trend by using for example the <a href="https://en.wikipedia.org/wiki/Hodrick%E2%80%93Prescott_filter" rel="nofollow noreferrer">Hodrick-Prescott filter</a> device).</p>

<p>Decompose output $Y_t = T_t+Y_{c,t}$, where $T_t$ is the trend component and $Y_{c,t}$ is the cyclical component (note that the cyclical component can be positive or negative). Then </p>

<p>$$OMH_t = \frac {Y_t}{L_t} = \frac {T_t+Y_{c,t}}{L_t}$$</p>

<p>while </p>

<p>$$NOMH_t = \frac {T_t}{L_t}$$</p>

<p>Then the ratio of actual to normal is</p>

<p>$$\frac{OMH_t}{NOMH_t} = 1+ \frac{Y_{c,t}}{T_t}$$</p>

<p>This gives a "mark-up" (or "mark-down" if $Y_{c,t}&lt;0$), on "normal costs" and it is in this sense that it "represents the cyclical component of costs". Namely, this ratio is the gross mark-up or mark-down we need in order to go from "normal" costs to actual costs.</p>

CC BY-SA 3.0
2017-06-11T15:37:01.727Z
Great stuff. Is $L_t$ the size of the labour force?
LondonRob
CC BY-SA 3.0
2017-06-11T15:46:54.253Z
@LondonRob It represents man-hours
Alecos Papadopoulos
CC BY-SA 3.0
2017-06-11T10:29:36.507Z
2017-06-11T19:37:48.193Z
2017-06-11T19:37:48.193Z
Alecos Papadopoulos
<p>In an early OECD study by <a href="http://econpapers.repec.org/article/palimfstp/v_3a25_3ay_3a1978_3ai_3a1_3ap_3a147-206.htm" rel="nofollow noreferrer">Deppler and Ripley (1978)</a>, the authors distinguish between output per man hour, $OMH$, and what they call "Normal" output per man-hour, $NOMH$.</p>

<p><a href="https://i.sstatic.net/ArGCf.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/ArGCf.png" alt="table 2"></a>
(table 2, p152)</p>

<p>At no point in the paper do they explain this distinction, which also occurs for the labour cost variables.</p>

<p>In the text (p154) they explain that:</p>

<blockquote>
  <p>The cyclical component of labor costs is represented by the ratio of
  actual to "normal" output per man-hour.</p>
</blockquote>

<p>This all seems very mysterious to me. Are they talking about a particular reference year value? Or is it a trend component?</p>

CC BY-SA 3.0
2017-06-10T16:05:04.197Z
According to [this reference](https://books.google.com/books?id=F7UYDAAAQBAJ&pg=PA270&lpg=PA270&dq=normal+output+economics&source=bl&ots=tsdP1mjQ4A&sig=fgtV9cf52abW-12HeOaBV7ur1qY&hl=en&sa=X&ved=0ahUKEwjH7sDa0rPUAhVh_IMKHQFqBl8Q6AEIkgEwEQ#v=onepage&q=normal%20output%20economics&f=false), they are referring to output relative to time trend. To reflect capacity utilization and what not. It is difference between actual and expected output based on past trend.
Liam
<macroeconomics><labor-economics><empirical-evidence><definition>
"Normal" vs "actual" variables in empirical work
LondonRob
# "Normal" vs "actual" variables in empirical work

(Asked by: username_0 on 2017-06-09)

In an early OECD study by [Deppler and Ripley (1978)](http://econpapers.repec.org/article/palimfstp/v_3a25_3ay_3a1978_3ai_3a1_3ap_3a147-206.htm), the authors distinguish between output per man hour, $OMH$, and what they call "Normal" output per man-hour, $NOMH$.

[![table 2](https://i.sstatic.net/ArGCf.png)](https://i.sstatic.net/ArGCf.png)
(table 2, p152)

At no point in the paper do they explain this distinction, which also occurs for the labour cost variables.

In the text (p154) they explain that:

> The cyclical component of labor costs is represented by the ratio of
> actual to "normal" output per man-hour.

This all seems very mysterious to me. Are they talking about a particular reference year value? Or is it a trend component?

**Tags:** macroeconomics, labor-economics, empirical-evidence, definition
> **Comments:**
> **username_1**: According to [this reference](https://books.google.com/books?id=F7UYDAAAQBAJ&pg=PA270&lpg=PA270&dq=normal+output+economics&source=bl&ots=tsdP1mjQ4A&sig=fgtV9cf52abW-12HeOaBV7ur1qY&hl=en&sa=X&ved=0ahUKEwjH7sDa0rPUAhVh_IMKHQFqBl8Q6AEIkgEwEQ#v=onepage&q=normal%20output%20economics&f=false), they are referring to output relative to time trend. To reflect capacity utilization and what not. It is difference between actual and expected output based on past trend.  

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## 1 answers

### Answer by username_2 on 2017-06-11. Score: 1 | Accepted answer

"Normal" in this context means "trend" (usually a simple linear trend, but in principle could be a non-linear trend by using for example the [Hodrick-Prescott filter](https://en.wikipedia.org/wiki/Hodrick%E2%80%93Prescott_filter) device).

Decompose output $Y\_t = T\_t+Y\_{c,t}$, where $T\_t$ is the trend component and $Y\_{c,t}$ is the cyclical component (note that the cyclical component can be positive or negative). Then

$$OMH\_t = \frac {Y\_t}{L\_t} = \frac {T\_t+Y\_{c,t}}{L\_t}$$

while

$$NOMH\_t = \frac {T\_t}{L\_t}$$

Then the ratio of actual to normal is

$$\frac{OMH\_t}{NOMH\_t} = 1+ \frac{Y\_{c,t}}{T\_t}$$

This gives a "mark-up" (or "mark-down" if $Y\_{c,t}<0$), on "normal costs" and it is in this sense that it "represents the cyclical component of costs". Namely, this ratio is the gross mark-up or mark-down we need in order to go from "normal" costs to actual costs.

> **Comments:**
> **username_0**: Great stuff. Is $L_t$ the size of the labour force?  
> **username_2**: @LondonRob It represents man-hours  

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