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Labor Market Effects of Technology Shocks Biased toward the Traded Sector

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  • Luisito Bertinelli
  • Olivier Cardi
  • Romain Restout

Abstract

Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition effects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a permanent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the increase in traded TFP are those where capital relative to labor efficiency increases.

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  • Luisito Bertinelli & Olivier Cardi & Romain Restout, 2019. "Labor Market Effects of Technology Shocks Biased toward the Traded Sector," Working Papers 283847880, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:283847880
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    Keywords

    Sectoral technology shocks; factor-augmenting efficiency; Open economy; Labor reallocation across sectors; CES production function; Labor income share;
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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