Aggregate shocks and labor market fluctuations (original) (raw)

The Labor Market Effects of Technology Shocks, CEPR working paper 6365

2007

We analyze the labor market effects of neutral and investment-specific tech-nology shocks along the intensive margin (hours worked) and the extensive mar-gin (unemployment). We characterize the dynamic response of unemployment in terms of the job separation and the job finding rate. Labor market adjust-ments occur along the extensive margin in response to neutral shocks, along the intensive margin in response to investment specific shocks. The job separation rate accounts for a major portion of the impact response of unemployment. Neu-tral shocks prompt a contemporaneous increase in unemployment because of a sharp rise in the separation rate. This is prolonged by a persistent fall in the job finding rate. Investment specific shocks rise employment and hours worked. Neutral shocks explain a substantial portion of the volatility of unemployment and output; investment specific shocks mainly explain hours worked volatility. This suggests that neutral progress is consistent with Schumpet...

Labor Market Effects of Technology Shocks

SSRN Electronic Journal, 2007

We analyze the labor market effects of neutral and investment-specific technology shocks along the intensive margin (hours worked) and the extensive margin (unemployment). We characterize the dynamic response of unemployment in terms of the job separation and the job finding rate. We find that the job separation rate accounts for a major portion of the impact response of unemployment. Over the adjustment path, instead, unemployment is mainly explained by fluctuations in the job finding rate. Neutral shocks prompt an increase in unemployment while investment specific shocks are expansionary on employment and hours worked. Neutral shocks explain a substantial portion of the volatility of unemployment and output; investment specific shocks mainly explain hours worked volatility. We show that these findings are consistent with the view that neutral technological progress prompt Schumpeterian creative destruction, while investment-specific technological progress operates essentially as in a neoclassical growth model.

Supply shocks, demand shocks, and labor market fluctuations

2009

The authors use structural vector autoregressions to analyze the responses of worker flows, job flows, vacancies, and hours to demand and supply shocks. They identify these shocks by restricting the short-run responses of output and the price level. On the demand side, they disentangle a monetary and nonmonetary shock by restricting the response of the interest rate. The responses of labor market variables are similar across shocks: Expansionary shocks increase job creation, the job-finding rate, vacancies, and hours; and they decrease job destruction and the separation rate. Supply shocks have more persistent effects than demand shocks. Demand and supply shocks are equally important in driving business cycle fluctuations of labor market variables. The authors' findings for demand shocks are robust to alternative identification schemes involving the response of labor productivity at different horizons. Supply shocks identified by restricting productivity generate a higher fraction of impulse responses inconsistent with standard search and matching models. (JEL C32, E24, E32, J63) Federal Reserve Bank of St. Louis Review,

Un)Employment Dynamics: The Case of Monetary Policy Shocks

2006

This paper estimates an identi…ed VAR on US data to gauge the dynamic response of the job …nding rate, the worker separation rate, and vacancies to monetary policy shocks. I develop a general equilibrium model that can account for the large and persistent responses of vacancies, the job …nding rate, the smaller but distinct response of the separation rate, and the inertial response of in ‡ation. The model incorporates labor market frictions, capital accumulation, and nominal price rigidities. Special attention is paid to the role of di¤erent propagation mechanisms and the impact of search frictions on marginal costs. Estimates of selected parameters of the model show that wage rigidity, moderate recruiting costs, and a high value of the opportunity costs of employment are important in explaining the dynamic response of the economy. The analysis extends to a broader set of aggregate shocks and can be used to understand and design monetary, labor market, and other policies in the presence of labor market frictions.

Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations

1996

Using data for the G7 countries, Iestimate conditional correlations of employment and productivity, based on a decomposition of the two series into technology and non-technology components. The picturethatemerges is hardto reconcile with the predictions of the standardReal Business Cycle model. For a majority of countries the following resultsstand out: (a) technology shockt appear to induce a negative comovement between productivity and employment, counterbalancedby apositive comovement generatedby demandshocks, (b) the impulse responses show a persistent decline of employment in response to a positive technology shock, and (c) measured productivity increases temporarily in response to a positive demand shock. generally,the patternof economic fluctuationsattributedto technology shocks seems to be unrelatedto major postwarcyclical episodes. A simple model with monopolistic competition prices, and variable effort is shown to be able to account for the empirical findings.

Technology shocks and labor market dynamics: Some evidence and theory

Journal of Monetary Economics, 2007

A positive technology shock may lead to a rise or a fall in per capita hours, depending on how hours enter the empirical VAR model. We provide evidence that, independent of how hours enter the VAR, a positive technology shock leads to a weak response in nominal wage inflation, a modest decline in price inflation, and a modest rise in the real wage on impact and a permanent rise in the long run. We then examine the abilities of several competing theories to account for the evidence. The model that stands out features sticky prices, sticky nominal wages, and habit formation. The same model also does well in accounting for the labor market evidence in the post-Volcker period.

A New Approach to the Analysis of Shocks and the Cycle in a Model of Output and Employment

1999

There is a wide literature on the dynamic adjustment of employment and its relationship with the business cycle. Our aim is to propose a statistical model that offers a congruent representation of post-war US employment and output data. We use a cointegrated vector autoregressive Markov-switching model where some parameters are changing according to phase of the business and employment cycle. Employment and output are found to have a common cyclical component and the long run dynamics are characterized by a cointegrating vector including employment and output and a trend as a proxy for technological progress and capital accumulation. Short-run and long-run dynamics are jointly estimated in a Markov-switching vector-equilibrium-correction model with three regimes representing recession, growth and high growth. For the analysis of the dynamics of output and employment, a new set of impulse-response exercises is proposed.

Investment-Specific Shocks and Cyclical Fluctuations in a Frictional Labor Market

B E Journal of Macroeconomics, 2010

This paper studies the role of investment-specific shocks as an amplification mechanism in the labor market fluctuations. We first show evidence that suggests that when technological advances make equipment more expensive, not only investment and output decrease but also firms post fewer vacancies, hours worked are reduced and unemployment increases. Moreover, we study the quantitative impact of this type of shocks on the labor market by incorporating them into a Real Business Cycle model with search and matching frictions. We find that in our model these shocks have direct amplification effect on labor market fluctuations, increasing the volatility of the labor market variables between two and five times.

Technology Shocks, Employment, and Labor Market Frictions

Recent empirical evidence suggests that a positive technology shock leads to a decline in labor inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labor market frictions address this problem, without otherwise altering the functioning of the model? We develop and estimate a real business cycle model using Bayesian techniques that allows, but does not require, labor market frictions to generate a negative response of employment to a technology shock. The results of the estimation support the hypothesis that labor market frictions are the factor responsible for the negative response of employment.