Technology and the two margins of labor adjustment: a New Keynesian perspective

Francesco Furlanetto, Tommy Sveen () and Weinke Lutz ()
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Weinke Lutz: Humboldt-Universität zu Berlin, Berlin, Germany

The B.E. Journal of Macroeconomics, 2020, vol. 20, issue 1, 18

Abstract: Canova et al. [Canova, F., J. D. López-Salido, and C. Michelacci. 2010. “The Effects of Technology Shocks on Hours and Output: A Robustness Analysis.” Journal of Applied Econometrics 25: 755–773; Canova, F., J. D. López-Salido, and C. Michelacci. 2012. “The Ins and Outs of Unemployment: An Analysis Conditional on Technology Shocks.” The Economic Journal 123: 515–539] estimate the dynamic response of labor market variables to technological shocks. They show that investment-specific shocks imply predominantly an adjustment along the intensive margin (i.e., hours per worker), whereas for neutral shocks the largest share of the adjustment takes place along the extensive margin (i.e., employment). In this paper we develop a New Keynesian model featuring capital accumulation, two margins of labor adjustment and a hiring cost. The model is used to analyze a novel economic mechanism to explain that evidence.

Keywords: labor market; sticky prices; technological shocks (search for similar items in EconPapers)
JEL-codes: E22 E24 E32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/bejm-2018-0217

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