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Technology and the Two Margins of Labor Adjustment: A New Keynesian Perspective

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

No 2018/7, Working Paper from Norges Bank

Abstract: Canova et al. (2010 and 2012) estimate the dynamic response of labor market variables to technological shocks. They show that investment-specifi?c shocks imply almost exclusively an adjustment along the intensive margin (i.e., hours worked), 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: Technological Shocks; Sticky Prices; Labor Market (search for similar items in EconPapers)
JEL-codes: E22 E24 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2018-05-15
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