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Effects of Productivity Shocks on Employment: UK Evidence (revised 25 February 2013)

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  • Hashmat Khan

    ()
    (Department of Economics, Carleton Universtiy)

  • John Tsoukalas

    ()
    (School of Economics, University of Nottingham Author-Workplace Homepage: http://www.nottingham.ac.uk/economics/index.aspx)

Abstract

We provide evidence that positive industry-level productivity shocks cause employment to fall in the short run in the UK economy. We use a new UK industry data(over the period 1970-2000), which covers both manufacturing and non-manufacturing industries, and identify productivity shocks using long-run restrictions and structural vector autoregression methodology. Our findings show that the unconditional correlation between growth rates of productivity and employment (measured as hours-worked)is negative in almost all the industries, and the correlation conditional on productivity shocks is negative in over three-quarters of the industries. After a positive productivity shock, short-run employment falls in 26 of the 31 industries. The findings at the aggregate level are consistent with those at industry level. We note some striking differences in comparison to the recent US literature and consider potential sources that may help account for the contractionary effects of positive productivity shocks in the UK.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-05.

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Length: 23 pages
Date of creation: 25 May 2011
Date of revision: 25 Feb 2013
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:11-05

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Related research

Keywords: Productivity shocks; employment; business cycles;

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
  2. John Shea, 1999. "What Do Technology Shocks Do?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 275-322 National Bureau of Economic Research, Inc.
  3. Michelle Alexopoulos, 2004. "Read All About it: What happens following a technology shock," 2004 Meeting Papers 56, Society for Economic Dynamics.
  4. Charlotta Groth & Soledad Nuñez & Sylaja Srinivasan, 2006. "Productivity growth, adjustment costs and variable factor utilisation: the UK case," Bank of England working papers 295, Bank of England.
  5. Yongsung Chang & Jay H. Hong, 2005. "Do technological improvements in the manufacturing sector raise or lower employment?," Working Paper 05-02, Federal Reserve Bank of Richmond.
  6. Charlotta Groth, 2008. "Quantifying UK Capital Adjustment Costs," Economica, London School of Economics and Political Science, vol. 75(298), pages 310-325, 05.
  7. Nicholas Oulton & Sylaja Srinivasan, 2005. "Productivity growth in UK industries, 1970-2000: structural change and the role of ICT," Bank of England working papers 259, Bank of England.
  8. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
  9. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
  10. Michelle Alexopoulos & Jon Cohen, 2009. "Measuring Our Ignorance, One Book at a Time: New Indicators of Technological Change, 1909-1949," Working Papers tecipa-349, University of Toronto, Department of Economics.
  11. Christopher Erceg & Luca Guerrieri & Christopher Gust, 2004. "Can long-run restrictions identify technology shocks?," International Finance Discussion Papers 792, Board of Governors of the Federal Reserve System (U.S.).
  12. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are Technology Improvements Contractionary?," NBER Working Papers 10592, National Bureau of Economic Research, Inc.
  13. Jordi Galí & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations," IMF Working Papers 04/234, International Monetary Fund.
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