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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Schwartzman, Felipe / Wang, Pengfei

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Technology and the two margins of labor adjustment: a New Keynesian perspective

Francesco Furlanetto / Tommy Sveen / Lutz Weinke
Published Online: 2019-08-05 | DOI: https://doi.org/10.1515/bejm-2018-0217


Canova et al. [Canova, F., J. D. López-Salido, and C. Michelacci. 2010. “The Effects of Technology Shocks on Hours and Output: A Robustness Analysis.” Journal of Applied Econometrics 25: 755–773; Canova, F., J. D. López-Salido, and C. Michelacci. 2012. “The Ins and Outs of Unemployment: An Analysis Conditional on Technology Shocks.” The Economic Journal 123: 515–539] estimate the dynamic response of labor market variables to technological shocks. They show that investment-specific shocks imply predominantly an adjustment along the intensive margin (i.e., hours per worker), whereas for neutral shocks the largest share of the adjustment takes place along the extensive margin (i.e., employment). In this paper we develop a New Keynesian model featuring capital accumulation, two margins of labor adjustment and a hiring cost. The model is used to analyze a novel economic mechanism to explain that evidence.

Keywords: labor market; sticky prices; technological shocks

JEL Classification: E22; E24; E32


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About the article

Published Online: 2019-08-05

Funding Source: Deutsche Forschungsgemeinschaft (DFG, German Research Foundation)

Award identifier / Grant number: 402884221

This research was funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) – Funder Id: http://dx.doi.org/10.13039/501100001659, 402884221. Their financial support is gratefully acknowledged. The usual disclaimer applies.

Citation Information: The B.E. Journal of Macroeconomics, 20180217, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2018-0217.

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