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

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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File URL: http://www.carleton.ca/economics/wp-content/uploads/cep11-05.pdf
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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-05.

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Length: 23 pages
Date of creation: 25 May 2011
Date of revision: 25 Feb 2013
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:11-05
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  1. Christopher J. Erceg & Luca Guerrieri, 2004. "Can Long-Run Restrictions Identify Technology Shocks?," Computing in Economics and Finance 2004 3, Society for Computational Economics.
  2. Miles Parker, 2014. "Price-setting behaviour in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2014/04, Reserve Bank of New Zealand.
  3. Susanto Basu & John Fernald & Miles Kimball, 2004. "Are technology improvements contractionary?," Working Paper Series WP-04-20, Federal Reserve Bank of Chicago.
  4. Yongsung Chang & Jay H. Hong, 2005. "Do technological improvements in the manufacturing sector raise or lower employment?," Working Paper 05-02, Federal Reserve Bank of Richmond.
  5. 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.).
  6. Jordi Gali & Pau Rabanal, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBS Model Fit Postwar U.S. Data?," NBER Working Papers 10636, National Bureau of Economic Research, Inc.
  7. Michelle Alexopoulos, 2010. "Read All About it!! What happens following a technology shock?," Working Papers tecipa-391, University of Toronto, Department of Economics.
  8. John Shea, 1998. "What Do Technology Shocks Do?," NBER Working Papers 6632, National Bureau of Economic Research, Inc.
  9. Charlotta Groth & Soledad Nuñez & Sylaja Srinivasan, 2006. "Productivity growth, adjustment costs and variable factor utilisation: the UK case," Bank of England working papers 295, Bank of England.
  10. Nicholas Oulton & Sylaja Srinivasan, 2005. "Productivity growth in UK industries, 1970-2000: structural change and the role of ICT," Bank of England working papers 259, Bank of England.
  11. Michelle Alexopoulos & Jon Cohen, 2009. "Measuring Our Ignorance, One Book at a Time: New Indicators of Technological Change, 1909-1949," Working Papers tecipa-349, University of Toronto, Department of Economics.
  12. Faust, Jon & Leeper, Eric M, 1997. "When Do Long-Run Identifying Restrictions Give Reliable Results?," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 345-53, July.
  13. Charlotta Groth, 2008. "Quantifying UK Capital Adjustment Costs," Economica, London School of Economics and Political Science, vol. 75(298), pages 310-325, 05.
  14. Galí, Jordi & Rabanal, Pau, 2004. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Post-War US Data?," CEPR Discussion Papers 4522, C.E.P.R. Discussion Papers.
  15. Hashmat Khan & John Tsoukalas, 2005. "Technology Shocks and UK Business Cycles," Macroeconomics 0512006, EconWPA.
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