Technology—Policy Interaction in Frictional Labour-Markets

Andreas Hornstein, Per Krusell and Giovanni L. Violante

The Review of Economic Studies, 2007, vol. 74, issue 4, 1089-1124

Abstract: Does capital-embodied technological change play an important role in shaping labour-market outcomes? To address this question, we develop a model with vintage capital and search-matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms, matched as well as vacant. We demonstrate that capital-embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations. In addition, the presence of labour-market regulations (unemployment benefits, payroll taxes, and firing costs) exacerbates these effects. Thus, the model is qualitatively consistent with some key features of the European labour-market experience relative to that of the U.S.: it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share. A calibrated version of our model suggests that this technology—policy interaction could explain a sizeable fraction of the observed differences between the U.S. and Europe. Copyright 2007, Wiley-Blackwell.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1467-937X.2007.00449.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Technology-policy interaction in frictional labor markets (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:74:y:2007:i:4:p:1089-1124

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().