Technology Shocks and Employment

Fabrice Collard () and Harris Dellas

No 3680, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent empirical work has suggested that in response to a positive technology shock, labour productivity rises more than output, while employment shows a persistent decline. This finding has raised doubts concerning the relevance of the RBC model as well as the quantitative significance of technology shocks as a source of aggregate fluctuations. We show that the inability of the RBC model to fit these stylized facts is an artifact of the closed economy assumption. In an open economy, the flexible price RBC model can match the negative conditional correlation between productivity and employment quite well, as long as trade elasticities fall short of unity and the degree of openness is sufficiently high. The computed variance-decompositions also suggest that there is no empirical inconsistency between matching this correlation and accepting that technology shocks are the main source of variation in output. Moreover, using a low trade elasticity value does not worsen performance along any other dimensions.

Keywords: employment; flexible prices; open economy; staggered prices; technological shocks (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2003-01
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Working Paper: Technology Shocks and Employment (2002)
Journal Article: Technology Shocks and Employment (2007)
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