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The impact of US productivity growth on unemployment in the time–frequency domain: is AI causing a change in the relationship?

Author

Listed:
  • Patrick M. Crowley

    (Texas A&M University-Corpus Christi)

  • David Hudgins

    (Texas A&M University-Corpus Christi)

Abstract

US data are used to explore the relationship between the unemployment rate and productivity at different cycle lengths by employing time–frequency methodology. Previous studies suggest that the unemployment rate is positively related to productivity increases in the short-run (high frequency ranges), and negatively related at the longer-intervals (low frequency ranges)—and although we largely reproduce these results, with more recent data, we also provide some important additional insights. The extended results show the relationship between unemployment and productivity in the time–frequency domain using growth in corporate profitability as a conditioning variable, to observe the long-term stability of the productivity-unemployment relationship. We find that when conditioned on the growth in corporate profits, the response of unemployment to the growth in productivity has become much stronger and faster in recent years, with the result that labor market adjustments are no longer keeping pace with the technological change. Not only this, but the usual explanation that short-term losses in employment consequent on growth in productivity is outweighed by long-term gains appears to be weakening and our results suggest that this may already be reversing, perhaps in response to the AI revolution currently underway.

Suggested Citation

  • Patrick M. Crowley & David Hudgins, 2024. "The impact of US productivity growth on unemployment in the time–frequency domain: is AI causing a change in the relationship?," Empirical Economics, Springer, vol. 66(5), pages 2169-2190, May.
  • Handle: RePEc:spr:empeco:v:66:y:2024:i:5:d:10.1007_s00181-023-02510-x
    DOI: 10.1007/s00181-023-02510-x
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    References listed on IDEAS

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    1. Murat Tasci, 2010. "Are jobless recoveries the new norm?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar.
    2. Pu Chen & Willi Semmler, 2018. "Short and Long Effects of Productivity on Unemployment," Open Economies Review, Springer, vol. 29(4), pages 853-878, September.
    3. Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.
    4. Tripier, Fabien, 2006. "Sticky prices, fair wages, and the co-movements of unemployment and labor productivity growth," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2749-2774, December.
    5. Hudgins, David & Shuai, Jie, 2006. "Optimal Monetary Policy Rules for Averting Productivity Induced Jobless Recoveries," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 2(2), pages 1-9.
    6. Gallegati Marco & Gallegati Mauro & Ramsey James B. & Semmler Willi, 2016. "Productivity and unemployment: a scale-by-scale panel data analysis for the G7 countries," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(4), pages 477-493, September.
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    More about this item

    Keywords

    Time–frequency domain; Continuous wavelet transform; Unemployment; Productivity growth; Business cycle;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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