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WHY HOURS WORKED DECLINE LESS AFTER TECHNOLOGY SHOCKS?

Olivier Cardi and Romain Restout

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: The contractionary effect of aggregate technology shocks on hours worked has shrunk over time in OECD countries. Our estimates suggest that this finding can be attributed to the increasing share of the variance of technology improvements driven by asymmetric technology shocks across sectors. While technology improvements uniformly distributed across sectors are found empirically to give rise to a dramatic decline in total hours worked, asymmetric technology shocks do the opposite. By depreciating non-traded prices, symmetric technology shocks generate a contractionary effect on non-traded labor and thus on total hours. In contrast, by appreciating non-traded prices, technological change concentrated toward traded industries puts upward pressure on wages which has a strong expansionary effect on total hours worked. A two-sector open economy model with frictions into the movements of inputs can reproduce the time -increasing response of both total and sectoral hours worked we estimate empirically once we allow for factor-biased technological change and we let the share of asymmetric technology shocks increase over time. A model with endogenous technology decisions reveals that two-third of the progression of asymmetric technology shocks is driven by greater exposition of traded industries to the international stock of knowledge.

Keywords: Sector-biased technology shocks; Endogenous technological change; Factor-augmenting efficiency; Open economy; Labor reallocation; CES production function; Labor income share. (search for similar items in EconPapers)
JEL-codes: E25 E62 F11 F41 O33 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-lma, nep-mac and nep-opm
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Working Paper: Why Hours Worked Decline Less after Technology Shocks? (2023) Downloads
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