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Labor Market Effects of Technology Shocks biased toward the Traded Sector

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Article number103645
<mark>Journal publication date</mark>30/09/2022
<mark>Journal</mark>Journal of International Economics
Number of pages29
Publication StatusPublished
Early online date4/07/22
<mark>Original language</mark>English


Our VAR evidence for OECD countries reveals that the non-traded sector alone drives the increase in 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% 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, a demand for home-produced traded goods which is elastic enough w.r.t. the terms of trade, 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 countries.