Labor Market Effects of Technology Shocks Biased toward the Traded Sector

Luisito Bertinelli, Olivier Cardi and Romain Restout

No 342990229, Working Papers from Lancaster University Management School, Economics Department

Abstract: Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the labor market effects of technology shocks biased toward the traded sector. Our VAR evidence for seventeen OECD countries reveals that the non-traded sector alone drives the increase in total hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock generates a reallocation of labor toward the non-traded sector which contributes to 35% on average of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, gross substitutability between home- and foreign-produced traded goods, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and across countries.

Keywords: Sector-biased technology shocks; Factor-augmenting efficiency; Open economy; Labor reallocation; CES production function; Labor income share (search for similar items in EconPapers)
JEL-codes: E21 E32 F11 F41 O33 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eff, nep-int, nep-mac and nep-opm
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Related works:
Journal Article: Labor market effects of technology shocks biased toward the traded sector (2022)
Working Paper: Labor market effects of technology shocks biased toward the traded sector (2022)
Working Paper: Labor Market Effects of Technology Shocks Biased Toward the Traded Sector (2021)
Working Paper: LABOR MARKET EFFECTS OF TECHNOLOGY SHOCKS BIASED TOWARD THE TRADED SECTOR (2021)
Working Paper: LABOR MARKET EFFECTS OF TECHNOLOGY SHOCKS BIASED TOWARD THE TRADED SECTOR (2020)
Working Paper: Labor Market Effects of Technology Shocks Biased toward the Traded Sector (2019)
Working Paper: Labor Market Effects of Technology Shocks Biased Toward the Traded Sector (2019)
Working Paper: Labor Market Effects of Technology Shocks BiasedToward the Traded Sector (2018)
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