Technology Shocks, Employment, and Labor Market Frictions
FRB Atlanta Working Paper 2008-10
36 Pages Posted: 5 May 2008
Date Written: February 2008
Recent empirical evidence suggests that a positive technology shock leads to a decline in labor inputs. However, the standard real business cycle 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 responsible for the negative response of employment.
Keywords: technology shocks, employment, labor market frictions
JEL Classification: E32
Suggested Citation: Suggested Citation