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Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?

  • Yongsung Chang
  • Jay H. Hong

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 many more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds 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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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 1 (March)
Pages: 352-368

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:1:p:352-368
Note: DOI: 10.1257/000282806776157687
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