3 The Solow residual is an empirical measure of total factor productivity, A, in the production function. It increases as a result of technical progress that increases the amount of output that can be produced with the same amounts of labour and capital services (inputs). However, the Solow residual also changes as a result of changes in the utilization rates of capital and labour. The Solow residual is procyclical, at least partly because the utilization rates of capital and labour are procyclical. The procyclical behaviour of the utilization rate of labour may reflect labour hoarding, which occurs when firms continue to employ workers during recessions but use them less intensively or on tasks, such as maintenance, that do not contribute directly to measured output.