DP6365 The Labour Market Effects of Technology Shocks

Author(s): Fabio Canova, Jose David Lopez-Salido, Claudio Michelacci
Publication Date: June 2007
Keyword(s): creative destruction, Search frictions, technological progress
JEL(s): E00, J60, O33
Programme Areas: International Macroeconomics, Labour Economics

We analyze the effects of neutral and investment-specific technology shocks on hours worked and unemployment. We characterize the response of unemployment in terms of job separation and job finding rates. We find that job separation rates mainly account for the impact response of unemployment while job finding rates for movements along its adjustment path. Neutral shocks increase unemployment and explain a substantial portion of unemployment and output volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. We show that this evidence is consistent with the view that neutral technological progress prompts Schumpeterian creative destruction, while investment specific technological progress has standard neoclassical features.