Final published version, 5.21 MB, PDF document
Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - Labor Market Effects of Technology Shocks Biased toward the Traded Sector
AU - Bertinelli, Luisito
AU - Cardi, Olivier
AU - Restout, Romain
PY - 2021/11/30
Y1 - 2021/11/30
N2 - Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the labor market effects of technology shocks biased toward the traded sector. Our VAR evidence for seventeen OECD countries reveals that the non-traded sector alone drives the increase in total hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock generates a reallocation of labor toward the non-traded sector which contributes to 35% on average of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, gross substitutability between home- and foreign-produced traded goods, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and across countries.
AB - Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the labor market effects of technology shocks biased toward the traded sector. Our VAR evidence for seventeen OECD countries reveals that the non-traded sector alone drives the increase in total hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock generates a reallocation of labor toward the non-traded sector which contributes to 35% on average of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, gross substitutability between home- and foreign-produced traded goods, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and across countries.
KW - Sector-biased technology shocks
KW - Factor-augmenting efficiency
KW - Open economy
KW - Labor reallocation
KW - CES production function
KW - Labor income share
M3 - Working paper
T3 - Economics Working Papers Series
BT - Labor Market Effects of Technology Shocks Biased toward the Traded Sector
PB - Lancaster University, Department of Economics
CY - Lancaster
ER -