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

Mandelman, Federico and Zanetti, Francesco, Technology Shocks, Employment, and Labor Market Frictions (February 2008). FRB Atlanta Working Paper 2008-10. Available at SSRN: or

Federico Mandelman (Contact Author)

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Francesco Zanetti

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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