Labor Market Dynamics under Technology Shocks: The Role of Subsistence Consumption

Sangyup Choi and Myungkyu Shim

No GRU_2020_002, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: This paper establishes new stylized facts about labor market dynamics in developing economies and proposes a simple theory to explain them. We first show that the response of hours worked and employment to a technology shock—identified by a structural VAR model with long-run restrictions—is smaller in developing economies than in advanced economies. We then present the evidence that the level of PPP-adjusted income per capita—a proxy for the importance of subsistence consumption—is strongly and robustly correlated with the relative variability of employment and consumption to output across countries, while other structural characteristics are not. We argue that an RBC model augmented with subsistence consumption can account for the several salient features of business cycle fluctuations in developing economies, including their distinct labor market dynamics under technology shocks.

Keywords: Business cycles; Developing economies; Subsistence consumption; Labor market dynamics; In- come effect; Long-run restrictions (search for similar items in EconPapers)
JEL-codes: E21 E32 F44 J20 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2020-03-12
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232020-002%20Choi.pdf (application/pdf)

Related works:
Journal Article: LABOR MARKET DYNAMICS UNDER TECHNOLOGY SHOCKS: THE ROLE OF SUBSISTENCE CONSUMPTION (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2020_002

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