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The Technological Origins of the Decline in Labor Market Dynamism

Author

Listed:
  • Jan Eeckhout

    (University College London and Barcelona)

  • Xi Weng

    (Guanghua School of Management, Peking Un)

Abstract

We ask whether and how technological change can account for the secular decline in labor market dynamism with decreasing job flows to and from unemployment and between employment. We focus on two determinants of technology broadly defined: 1. the complementarity between worker skill and firm productivity; and 2. the volatility in productivity shocks. We derive job flows in a sorting model with search frictions and endogenous search effort both on and off the job, as well as shocks that lead to mismatch. We find a decrease in complementarities between labor and technology, driven mainly by a decline in the elasticity of labor. The decrease in the labor share is largest for workers with high school education only. Instead, changes in the shock process leads a decrease in the frequency and a slight increase in the variance of those shocks. We show quantitatively that the changing nature of the technology contributes to the secular decline in labor market dynamism.

Suggested Citation

  • Jan Eeckhout & Xi Weng, 2018. "The Technological Origins of the Decline in Labor Market Dynamism," 2018 Meeting Papers 1007, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1007
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    References listed on IDEAS

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    1. Bruce Fallick & Charles Fleischman & Jonathan Pingle, 2010. "The Effect of Population Aging on the Aggregate Labor Market," NBER Chapters, in: Labor in the New Economy, pages 377-417, National Bureau of Economic Research, Inc.
    2. Edouard Schaal, 2017. "Uncertainty and Unemployment," Econometrica, Econometric Society, vol. 85(6), pages 1675-1721, November.
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    Cited by:

    1. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, Oxford University Press, vol. 135(2), pages 561-644.

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