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Effects of Productivity Shocks on Employment: UK Evidence (revised 25 February 2013)

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Abstract

We provide evidence that positive industry-level productivity shocks cause employment to fall in the short run in the UK economy. We use a new UK industry data(over the period 1970-2000), which covers both manufacturing and non-manufacturing industries, and identify productivity shocks using long-run restrictions and structural vector autoregression methodology. Our findings show that the unconditional correlation between growth rates of productivity and employment (measured as hours-worked)is negative in almost all the industries, and the correlation conditional on productivity shocks is negative in over three-quarters of the industries. After a positive productivity shock, short-run employment falls in 26 of the 31 industries. The findings at the aggregate level are consistent with those at industry level. We note some striking differences in comparison to the recent US literature and consider potential sources that may help account for the contractionary effects of positive productivity shocks in the UK.

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  • Hashmat Khan & John Tsoukalas, 2011. "Effects of Productivity Shocks on Employment: UK Evidence (revised 25 February 2013)," Carleton Economic Papers 11-05, Carleton University, Department of Economics, revised 25 Feb 2013.
  • Handle: RePEc:car:carecp:11-05
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    1. Miles S. Kimball & John G. Fernald & Susanto Basu, 2006. "Are Technology Improvements Contractionary?," American Economic Review, American Economic Association, vol. 96(5), pages 1418-1448, December.
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    13. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
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    More about this item

    Keywords

    Productivity shocks; employment; business cycles;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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