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Technology Shocks and the Labor-Input Response: Evidence from Firm-Level Data

  • MIKAEL CARLSSON
  • JON SMEDSAAS

We study the relationship between technology shocks and labor input on Swedish firm-level data using a production function approach to identify technology shocks. Taking standard steps yields a contractionary contemporaneous labor-input response in line with previous studies. This finding may, however, be driven by measurement errors in the labor-input variable. Relying on a unique feature of our data set, which contains two independently measured firm-specific labor input measures, we can evaluate the potential bias. We do not find that this bias conceals any true positive contemporaneous effect. The results thus point away from standard flexible-price models and toward models emphasizing firm-level rigidities. Copyright 2007 The Ohio State University.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 39 (2007)
Issue (Month): 6 (09)
Pages: 1509-1520

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Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:6:p:1509-1520
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  1. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago.
  2. John G. Fernald, 2005. "Trend breaks, long-run restrictions, and the contractionary effects of technology improvements," Working Paper Series 2005-21, Federal Reserve Bank of San Francisco.
  3. Annika Alexius & Mikael Carlsson, 2005. "Measures of Technology and the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 299-307, May.
  4. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What happens after a technology shock?," International Finance Discussion Papers 768, Board of Governors of the Federal Reserve System (U.S.).
  5. Ramey, Valerie A & Francis, Neville, 2002. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisted," University of California at San Diego, Economics Working Paper Series qt6x80k3nx, Department of Economics, UC San Diego.
  6. Gali, J., 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," Working Papers 96-28, C.V. Starr Center for Applied Economics, New York University.
  7. Tor Jakob Klette & Zvi Griliches, 1992. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous," NBER Working Papers 4026, National Bureau of Economic Research, Inc.
  8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  9. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  10. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
  11. 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.
  12. Mikael Carlsson, 2003. "Measures of Technology and the Short-run Response to Technology Shocks," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(4), pages 555-579, December.
  13. Michael Dotsey, 2002. "Structure from shocks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 37-47.
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