Labor Market Effects of Technology Shocks
Universitat Pompeu Fabra - Department of Economics and Business (DEB); European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS); University of Southampton - Division of Economics; Centre for Economic Policy Research (CEPR)
J. David Lopez-Salido
Bank of Spain - Research Department; Centre for Economic Policy Research (CEPR)
Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)
Banco de España Research Paper No. WP-0719
We analyze the effects of neutral and investment-specific technology shocks on hours worked and unemployment. We characterize the response of unemployment in terms of job separation and job finding rates. We find that job separation rates mainly account for the impact response of unemployment while job finding rates for movements along its adjustment path. Neutral shocks increase unemployment and explain a substantial portion of unemployment and output volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. We show that this evidence is consistent with the view that neutral technological progress prompts Schumpeterian creative destruction, while investment specific technological progress has standard neoclassical features.
Number of Pages in PDF File: 68
Keywords: search frictions, technological progress, creative
JEL Classification: E00, J60, O33
Date posted: July 3, 2007
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