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Do technological improvements in the manufacturing sector raise or lower employment?

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Author Info
Yongsung Chang
Jay H. Hong

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Abstract

We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas far more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds that a labor productivity shock has a strong negative effect on employment. There are tantalizing and interesting differences between TFP and labor productivity. We argue that TFP is a more natural measure of technology because labor productivity reflects shifts in the input mix as well as in technology.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 05-5.

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Date of creation: 2005
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Handle: RePEc:fip:fedpwp:05-5

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Keywords: Technology - Economic aspects Manufactures Employment

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  2. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-53, July.
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  3. Mark Bils and Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
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  4. Ellen McGrattan & V. V. Chari & Patrick Kehoe, 2005. "Are Structural VARs Useful Guides for Developing Business Cycle Theories?," 2005 Meeting Papers 664, Society for Economic Dynamics. [Downloadable!]
  5. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-83, April.
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  6. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1995. "Capital utilization and returns to scale," Working Paper Series, Macroeconomic Issues 95-5, Federal Reserve Bank of Chicago.
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  7. 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.). [Downloadable!]
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  8. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago. [Downloadable!]
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  9. Mikael Carlsson, 2003. "Measures of Technology and the Short-run Response to Technology Shocks," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(4), pages 555-579, December. [Downloadable!] (restricted)
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  13. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April. [Downloadable!] (restricted)
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  17. Almas Heshmati, 2003. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Journal of Economic Surveys, Blackwell Publishing, vol. 17(1), pages 79-112, February. [Downloadable!] (restricted)
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  18. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September. [Downloadable!] (restricted)
  19. Yongsung Chang & Andreas Hornstein & Pierre-Daniel G. Sarte, 2004. "Productivity, employment, and inventories," Working Paper 04-09, Federal Reserve Bank of Richmond. [Downloadable!]
  20. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation, Yale University. [Downloadable!]
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  21. Neville Francis & Valerie A. Ramey, 2002. "Is the Technology-Driven Real Business Cycle Hypothesis Dead?," NBER Working Papers 8726, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Marchetti, Domenico J. & Nucci, Francesco, 2005. "Price stickiness and the contractionary effect of technology shocks," European Economic Review, Elsevier, vol. 49(5), pages 1137-1163, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Guglielmo Maria Caporale & Davide Ciferri & Alessandro Girardi, 2008. "Fiscal Shocks and Real Exchange Rate Dynamics: Some Evidence for Latin America," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. FÈVE, Patrick & GUAY, Alain, 2006. "Identification of Technology Shocks in Structural VARs," IDEI Working Papers 383, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  3. Régis Barnichon, 2007. "Productivity, Aggregate Demand and Unemployment Fluctuations," CEP Discussion Papers dp0819, Centre for Economic Performance, LSE. [Downloadable!]
  4. Yongsung Chang & Andreas Hornstein & Pierre-Daniel G. Sarte, 2006. "Understanding how employment responds to productivity shocks in a model with inventories," Working Paper 06-06, Federal Reserve Bank of Richmond. [Downloadable!]
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