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Productivity Growth and Employment: Theory and Panel Estimates

  • Christopher A. Pissarides
  • Giovanna Vallanti

Theoretical predictions of the effect of TFP growth on employment are ambiguous, anddepend on the extent to which new technology is embodied in new jobs. We estimate amodel for employment, wages and investment with an annual panel for the United States,Japan and Europe and find that TFP growth increases employment. For the United StatesTFP growth explains the trend change in unemployment. We evaluate the model and findthat creative destruction plays no part in aggregate unemployment dynamics. The model canexplain up to half of the estimated impact of growth on unemployment.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0663.

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Date of creation: Dec 2004
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Handle: RePEc:cep:cepdps:dp0663
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  1. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc.
  2. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  3. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L, 2002. "Vintage Capital as an Origin of Inequalities," CEPR Discussion Papers 3596, C.E.P.R. Discussion Papers.
  4. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April.
  5. Jean-Paul Fitoussi & David Jestaz & Edmund S Phelps & Gylfi Zoega, 2000. "Roots of the Recent Recoveries: Labor Reforms or Private Sector Forces?," Sciences Po publications info:hdl:2441/5571, Sciences Po.
  6. Donald A. Walker (ed.), 2000. "Equilibrium," Books, Edward Elgar, volume 0, number 1585.
  7. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
  8. Fabien Postel-Vinay, 2002. "The Dynamics of Technological Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 737-760, August.
  9. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  10. repec:oup:qjecon:v:113:y:1998:i:4:p:1215-1244 is not listed on IDEAS
  11. Boeri, Tito, 1996. "Is Job Turnover Countercyclical?," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 603-25, October.
  12. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, December.
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