Employment responses to aggregate and sectoral technology shocks

This paper investigates the responses of sectoral employment in US manufacturing to a technology shock by its type: aggregate or sectoral. In order to distinguish between aggregate and sectoral shocks, we construct independent VAR models for identifying each shock separately: a factor-augmented vector autoregression (FAVAR) for aggregate shocks and a sectoral SVAR for sectoral shocks. Our aggregate model in particular extends the conventional small-scale VAR to the FAVAR framework of Bernanke et al. (2005) so that it can address the potential bias from omitted variables. The main findings are as follows: most industries exhibit negative employment responses to an aggregate technology shock while exhibiting positive responses to a sectoral technology shock. By comparing our FAVAR framework with Chang and Hong’s (2006) small-scale VAR, we show that applying the FAVAR results in significant differences in the estimated responses to an aggregate technology shock. Real rigidities (such as slow diffusion of new technology or frictional labor reallocation), rather than nominal rigidities (such as sticky prices), are crucial in accounting for the cross-industry difference in employment responses. In particular, the slow diffusion of new technology is closely related to the sluggish response of sectoral employment.     

Currency Devaluation and Resource Mobilization: A Computable General-Equilibrium Analysis of Adjustment in Cameroon

Currency devaluations prescribed for many developing countries are usually expected to generate a growth-stimulating reallocation of resources in favor of export production. Results from a computable general-equilibrium model of devaluation in Cameroon indicate aggregate growth in export agriculture with decline in some traditional export crops and expansion in specific nontradable food crops. While agriculture and manufacturing expand after devaluation, reduced output from services and construction causes short-term contraction in aggregate output. Positive growth and trade balance effects are dependent on a major reallocation of labor which has been difficult to achieve in Cameroon.     

Dualism and cross-country growth regressions

This paper develops empirical growth models suitable for dual economies, and studies the relationship between structural change and economic growth. Changes in the structure of employment will raise aggregate productivity when the marginal product of labor varies across sectors. The models in the paper incorporate this effect in a more flexible way than previous work. Estimates of the models imply sizeable marginal product differentials, and indicate that the reallocation of labor makes a significant contribution to the international variation in productivity growth.     

Employment and Productivity Growth in Europe and North America: The Impact of Labor Market Institutions

In this paper, we examine long-run employment and productivity growth in the major economies of North America and Europe from 1960 to the early 1990s. We develop a model in which output growth is determined by the growth of aggregate demand, and the relative contributions of employment and productivity growth to the growth of output depend on country specific labor market institutions. We find that institutions that promote collective bargaining, employment security and social protection have roughly equal and opposite effects on employment growth (negative) and productivity growth (positive), giving rise to an inverse relationship between these variables. The welfare implications of this finding are that labor market deregulation could result in more work and greater inequality and insecurity for workers, without significantly increasing the rate of economic growth.     

Money disillusion and stagflation

In the conventional income-expenditure model with rigid wages, the aggregate supply curve is upward sloping. Increases in demand therefore imply increases in real output and employment. We demonstrate here that this conclusion depends on the form of money illusion implied by the rigid wage assumption. If we assume instead that labor supply is more sensitive to price increases than to wage increases, the aggregate supply curve is negatively sloped, and the conventional policy multipliers are thereby reversed. In the second section, we show that this result also follows if labor supply depends on the expected real wage.     

Productivity and convergence across U.S. States and industries

We examine the sources of aggregate labor productivity movements and convergence in the U.S. states from 1963 to 1989. Productivity levels vary widely across sectors and across states, as do sectoral output and employment shares. The main finding is the diverse performance of sectors regarding convergence. Using both cross-section and time series methods, we find convergence in labor productivity for both manufacturing and mining. However, we find that convergence does not hold for all sectors over the period. Decomposing aggregate convergence into industry productivity gains and changing sectoral shares of output, we find the manufacturing sector to be responsible for the bulk of cross-state convergence.     

Labor reallocation in China: 1978–2011

This paper develops a three-sector model to analysis the mechanism of cross sectoral labor reallocation in China over the period of 1978–2011. The model incorporates factors of sectoral differences in productivity, non-homothetic preference characteristics of consumers, and institutional barriers of labor mobility. Moreover, the model considers changes in the scale of the public sector as an important driving force. We find that there are two effects of changes in the scale of the public sector in declining public sector output on labor reallocation. First, enterprises will increase the share of capital input to labor, resulting in relative expansion of non-agricultural production. Second, residents' income will also increase, together with the relative increase in demand towards non-agricultural goods due to non-homothetic preference characteristics of consumers. Therefore the non-agricultural production will further expand.     

Slow recoveries

Economies respond differently to aggregate shocks that reduce output. While some countries rapidly recover their pre-crisis trend, others stagnate. Recent studies provide empirical support for a link between aggregate growth and plant dynamics through its effect on productivity: the entry and exit of firms and the reallocation of resources from less to more efficient firms explain a relevant part of transitional productivity dynamics. In this paper, we use a stochastic general equilibrium model with heterogeneous firms to study the effect on aggregate short-run growth of policies that distort the process of birth, growth, and death of firms, as well as the reallocation of resources across economic units. Our findings show that indeed policies that alter plant dynamics can explain slow recoveries. We also find that output losses associated to delayed recoveries are large.     

THE EFFECTS OF FISCAL SHOCKS ON EMPLOYMENT AND THE REAL WAGE*

We study the transmission of fiscal shocks in the labor market. We employ a structural VAR and base identification on the restrictions that shocks to government consumption, investment, and employment must raise output and deficits. These restrictions hold in both prototype Real Business Cycle (RBC) and New Keynesian models. Shocks to government consumption and investment increase real wages and employment contemporaneously, both at state level and in the aggregate. The dynamics in response to employment shocks are mixed: Increases in government employment raise the real wage and total employment in the aggregate. However, in one third of the states they reduce total employment.     

Structural Change,Expanding Informality and Labor Productivity Growth in Russia

Strong growth, intensive structural change, and expanding informality have characterized many developing and emerging economies in recent decades. Yet most empirical investigations into the relationship between structural change and productivity growth overlook informality. This paper includes the informal sector in an analysis of the effects of structural changes in the Russian economy on aggregate labor productivity growth. Using a newly developed dataset for 34 industries covering the period 1995–2012 and applying three alternative approaches, aggregate labor productivity growth is decomposed into intra-industry and inter-industry contributions. All three approaches show that the overall contribution of structural change is growth enhancing, significant, and decreasing over time. Labor reallocation from the formal sector to the informal sector tends to reduce growth through the extension of informal activities with low productivity levels. Sectoral labor reallocation effects are found to be highly sensitive to the methods applied.     

技术进步对我国产出失业关系的影响分析

最近十几年来,我国经济出现了高增长和高失业并存的现象。可分劳动动态随机一般均衡模型模拟结果表明,技术进步促进了产出增长,同时也促进了就业增长,但对就业增长的促进作用明显小于对产出增长的促进作用,同时与技术进步相伴的资本投入也对劳动起到了替代作用。在经济活动人口不断增加的背景下,技术进步对产出和就业增长影响的不对称性,是我国高增长和高失业并存的重要原因。     

The role of agriculture in aggregate business cycles

There are substantial differences in business cycle fluctuations across countries. These differences are systematically related to the share of agriculture in the economy: Countries with a high share of employment in agriculture feature high fluctuations in aggregate output, low relative volatility of aggregate employment, and low correlation of aggregate output and employment. In addition, agriculture has certain distinctive features over the business cycle: Output and employment in agriculture are more volatile than and not positively correlated with output and employment in the rest of the economy and output and employment are less correlated in agriculture than in non-agriculture. Because of these features, agriculture may play a role in accounting for aggregate business cycles across countries. We calibrate an otherwise standard two-sector indivisible-labor business cycle model with agriculture and non-agriculture to aggregate and sectoral data for the United States. We find that an increase in the employment to population ratio in agriculture from 2 to 30 percent in our model increases fluctuations in aggregate output by almost 40 percent. This is about 2/3 of the difference in aggregate fluctuations between countries such as Turkey and the United States.     

Labor supply elasticity and social security reform

Previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution (IES) in labor. In this paper, we show that the effects of social security reforms on aggregate labor supply are invariant to plausible values of the IES, but the effect of such reforms on the profile of hours over the life-cycle is highly sensitive to the IES. We first establish these results analytically in a simple partial-equilibrium setting and then demonstrate their robustness in a general equilibrium model calibrated to match key U.S. macroeconomic indicators. We find that the aggregate effects are similar regardless of the wide range of the values of IES used in calibrated economies. However, social security reform leads to a large reallocation of hours worked over the life-cycle, from early years to later working years, and the size of this reallocation significantly increases with the IES.     

INCENTIVES AND THE COST OF FIRING IN AN EQUILIBRIUM LABOR MARKET MODEL WITH ENDOGENOUS LAYOFFS*

I study the effects of firing costs in an equilibrium model of the labor market with moral hazard. Layoff is an incentive device, modeled as termination of the optimal long‐term contract. When the economy’s stock of firms is fixed, firing costs could reduce layoffs and increase worker welfare. In the long run when firms are free to enter and exit the market, firing costs generate not only lower employment, longer unemployment durations, and lower aggregate output, but also lower welfare for both employed workers and new labor market entrants.     

PRODUCTIVITY GROWTH AND WORKER REALLOCATION*

Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. An equilibrium model of growth and firm evolution designed to clarify the role of worker reallocation in the growth process is studied. We show that it explains the correlations between size measures and labor productivity found in Danish firm data. Conditions under which the reallocation of workers from less to more productive firms contributes to aggregate productivity growth in the economy modeled are derived. Finally, a proof of existence of an equilibrium solution to the model is also provided.     

Labor market institutions and aggregate fluctuations in a search and matching model

This paper explores the influence of labor market institutions on aggregate fluctuations. It uses a dynamic, stochastic, general equilibrium model characterized by search and matching frictions in the labor market and nominal rigidities in the goods market. It finds that firing costs and unemployment benefits can have substantial effects on aggregate fluctuations. Increasing firing costs decreases the volatility of output, employment, and job flows due to the reduction in the mass of jobs sensitive to disturbances and lower incentives for firms to hire and fire workers. Hence, firms adjust to shocks mainly through prices, causing inflation to become more volatile. Raising unemployment benefits has the reverse effect on aggregate fluctuations.     

Job creation and job destruction in the presence of informal markets

In developing economies, the fraction of informal workers can be as high as 70% of total employment. For economies with significant informal sectors, business cycle fluctuations and labor market policy interventions can have important effects not only on the unemployment rate, but also on the allocation of workers across regulated and unregulated jobs. In this paper, using worker flows data from Brazil, we build, calibrate, and simulate a two-sector search and matching labor market model, in which firms have the choice of hiring workers formally or informally. We show that our model can explain well the main cyclical patterns that lead to those cyclical reallocations. We also show how the effect of government interventions in the labor market depend on the magnitude of the reallocation of labor across regulated and unregulated sectors. For our calibration, policies that decrease the cost of formal jobs, or increase the cost of informality, raise the share of formal employment while reducing unemployment.     

Market institutions,labor market dynamics,and productivity in Argentina during the 1990s

This paper addresses the effects of policy shocks and structural reforms on the dynamic behavior of manufacturing job flows and productivity in Argentina during the 1990s, and the contribution of job reallocation to productivity. The main findings are: (a) shocks to labor taxes have allocative effects, while financial shocks have aggregate effects; (b) import tariffs appear to protect obsolete jobs; (c) sectoral differences in labor intensity, openness, financial dependence and workers’ strength shape the responses to shocks; (d) intra‐ and inter‐sectoral reallocations contribute positively to productivity; and (e) trade liberalization and labor market flexibilization favor reallocation and creative destruction.     

INDUSTRIAL AND AGGREGATE MEASURES OF PRODUCTIVITY GROWTH IN CHINA, 1982–2000

We estimate productivity growth for 33 industries covering the entire Chinese economy using a time series of input–output tables covering 1982–2000. Capital input is measured using detailed investment data by asset and labor input uses demographic information from household surveys. We find a wide range of productivity performance at the industry level. We then show how these industry growth accounts may be consistently aggregated to deliver a decomposition of aggregate GDP growth. For the 1982–2000 period aggregate TFP growth was 2.5 percent per year; decelerating from a rapid rate in the early 1980s to negative growth during 1994–2000. The main source of growth during the 1982–2000 period was capital accumulation, with a small negative contribution from the reallocation of factors across industries.     

Wage and price controls in the equilibrium sequential search model

In this paper, we study the effects of wage and price controls on employment, output, and welfare in a simplified version of the Bénabou (J. Econom. Theory 60 (1993) 140) equilibrium sequential search model with bilateral heterogeneity. We show that a price ceiling increases output but the change in welfare depends on three effects: the reduction in aggregate search costs, the increase in surplus due to increased output, and the transfer of production to the least efficient firm. The model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage.