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Employment responses to aggregate and sectoral technology shocks

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  • Park, Kangwoo
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    Abstract

    This paper investigates the responses of sectoral employment in US manufacturing to a technology shock by its type: aggregate or sectoral. In order to distinguish between aggregate and sectoral shocks, we construct independent VAR models for identifying each shock separately: a factor-augmented vector autoregression (FAVAR) for aggregate shocks and a sectoral SVAR for sectoral shocks. Our aggregate model in particular extends the conventional small-scale VAR to the FAVAR framework of Bernanke et al. (2005) so that it can address the potential bias from omitted variables. The main findings are as follows: most industries exhibit negative employment responses to an aggregate technology shock while exhibiting positive responses to a sectoral technology shock. By comparing our FAVAR framework with Chang and Hong’s (2006) small-scale VAR, we show that applying the FAVAR results in significant differences in the estimated responses to an aggregate technology shock. Real rigidities (such as slow diffusion of new technology or frictional labor reallocation), rather than nominal rigidities (such as sticky prices), are crucial in accounting for the cross-industry difference in employment responses. In particular, the slow diffusion of new technology is closely related to the sluggish response of sectoral employment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 34 (2012)
    Issue (Month): 3 ()
    Pages: 801-821

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    Handle: RePEc:eee:jmacro:v:34:y:2012:i:3:p:801-821

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    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Aggregate technology shock; Sectoral technology shock; Factor-augmented vector autoregression; Technology diffusion; Frictional labor reallocation;

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