Working Paper: NBER ID: w5721
Authors: Jordi Gali
Abstract: Using data for the G7 countries, I estimate conditional correlations of employment and productivity, based on a decomposition of the two series into technology and non-technology components. The picture that emerges is hard to reconcile with the predictions of the standard Real Business Cycle model. For a majority of countries the following results stand out: (a) technology shocks appear to induce a negative comovement between productivity and employment, counterbalanced by a positive comovement generated by demand shocks, (b) the impulse responses show a persistent decline of employment in response to a positive technology shock, and (c) measured productivity increases temporarily in response to a positive demand shock. More generally, the pattern of economic fluctuations attributed to technology shocks seems to be largely unrelated to major postwar cyclical episodes. A simple model with monopolistic competition, sticky prices, and variable effort is shown to be able to account for the empirical findings.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology shocks (D89) | employment (J68) |
| technology shocks (D89) | productivity (O49) |
| demand shocks (E39) | productivity (O49) |
| technology shocks (D89) | productivity and employment comovement (E24) |
| demand shocks (E39) | employment and productivity comovement (E24) |
| positive technology shock (O49) | persistent decline in employment (J63) |
| positive demand shock (E00) | temporary increase in productivity (O49) |