Effects of Productivity Shocks on Employment: UK Evidence (revised 25 February 2013)

Hashmat Khan () and John Tsoukalas

No 11-05, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We provide evidence that positive industry-level productivity shocks cause employment to fall in the short run in the UK economy. We use a new UK industry data(over the period 1970-2000), which covers both manufacturing and non-manufacturing industries, and identify productivity shocks using long-run restrictions and structural vector autoregression methodology. Our findings show that the unconditional correlation between growth rates of productivity and employment (measured as hours-worked)is negative in almost all the industries, and the correlation conditional on productivity shocks is negative in over three-quarters of the industries. After a positive productivity shock, short-run employment falls in 26 of the 31 industries. The findings at the aggregate level are consistent with those at industry level. We note some striking differences in comparison to the recent US literature and consider potential sources that may help account for the contractionary effects of positive productivity shocks in the UK.

Keywords: Productivity shocks; employment; business cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-05-25, Revised 2013-02-25
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Citations: View citations in EconPapers (1)

Published: Carleton Economic Papers

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