Do technology shocks lower hours worked? – Evidence from Japanese industry level data

We examine the response of productivity and hours worked to technology and nontechnology shocks using the Japan Industrial Productivity (JIP) Database. We find that, at the aggregate level, positive technology shocks increase hours worked both in the manufacturing and the nonmanufacturing sector, accounting for a large fraction in the variances of hours worked. At the two- and three-digit industry levels, in contrast, we find that the correlation between productivity and hours worked in response to sectoral technology shocks tends to be negative. Further, we find that neither aggregate nor sectoral technology shocks appear to be the dominant factor underlying fluctuations in hours worked at the disaggregate level. The productivity decline in response to nontechnology shocks is not related to a permanent change in the relative size of industries.