The Technological Origins of the Decline in Labor Market Dynamism

Jan Eeckhout and Xi Weng

No 1007, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We ask whether and how technological change can account for the secular decline in labor market dynamism with decreasing job flows to and from unemployment and between employment. We focus on two determinants of technology broadly defined: 1. the complementarity between worker skill and firm productivity; and 2. the volatility in productivity shocks. We derive job flows in a sorting model with search frictions and endogenous search effort both on and off the job, as well as shocks that lead to mismatch. We find a decrease in complementarities between labor and technology, driven mainly by a decline in the elasticity of labor. The decrease in the labor share is largest for workers with high school education only. Instead, changes in the shock process leads a decrease in the frequency and a slight increase in the variance of those shocks. We show quantitatively that the changing nature of the technology contributes to the secular decline in labor market dynamism.

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-ino
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Journal Article: The technological origins of the decline in labor market dynamism (2024)
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