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How supply and demand shocks affect productivity and unemployment growth: evidence from OECD countries

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  • Giuseppe Travaglini

    (Università di Urbino “Carlo Bo”)

  • Alessandro Bellocchi

    (Università di Urbino “Carlo Bo”)

Abstract

In this paper we highlight the joint dynamic behavior of three key variables in labor market. Precisely, by means of a structural VAR we employ labor productivity, real wage and unemployment to identify the structural shocks affecting their pattern, in the long and short-run. We will label them as technology, markup and aggregate demand shocks, respectively. The impulse responses of each variable to shocks provide the measure of their (relative) elasticity in explaining the behavior of labor market in six OECD countries, namely Italy, France, Spain, Germany, UK and USA. We find that: (1) the conditional correlations between productivity and real wage are positive for both supply and demand shocks, (2) the impulse responses show a persistent increase of both productivity and real wage to supply shocks, (3) the level of unemployment shows a persistent decrease when hit by a positive demand shock. The main result of our analysis is that Keynesian policies can have permanent effect on the labor market equilibrium.

Suggested Citation

  • Giuseppe Travaglini & Alessandro Bellocchi, 2018. "How supply and demand shocks affect productivity and unemployment growth: evidence from OECD countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 955-979, December.
    • Handle: RePEc:spr:epolit:v:35:y:2018:i:3:d:10.1007_s40888-018-0127-1
    DOI: 10.1007/s40888-018-0127-1
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    Cited by:

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    2. Alessandro Bellocchi & Giuseppe Travaglini & Beatrice Vitali, 2023. "How capital intensity affects technical progress: An empirical analysis for 17 advanced economies," Metroeconomica, Wiley Blackwell, vol. 74(3), pages 606-631, July.
    3. Alessandro Bellocchi & Edgar J. Sanchez Carrera & Giuseppe Travaglini, 2021. "What drives TFP long-run dynamics in five large European economies?," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(2), pages 569-595, July.
    4. Walter Paternesi Meloni, 2024. "Okun vs. Verdoorn: distinguishing between cyclical and structural effects of output on productivity," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 41(2), pages 295-325, July.
    5. Sara Boni & Francesco Ravazzolo, 2022. "A Structural Analysis of Unemployment-Generating Supply Shocks with an Application to the US Pharmaceutical Industry," BEMPS - Bozen Economics & Management Paper Series BEMPS94, Faculty of Economics and Management at the Free University of Bozen.

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    More about this item

    Keywords

    SVAR; Labor market; Productivity; Real wage; Unemployment; Aggregate demand;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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