Title : LABOR MARKET EFFECTS OF TECHNOLOGY SHOCKS BIASED TOWARD THE TRADED SECTOR
Author(s) : Luisito BERTINELLI, Olivier CARDI, Romain RESTOUT
Abstract : Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the labor market effects of technology shocks biased toward the traded sector. Our VAR evidence for seventeen OECD countries reveals that the non-traded sector alone drives the increase in total hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock gives rise to a reallocation of labor which contributes to 35% on average 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 econ- omy model with flexible prices can reproduce the labor market effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we esti- mate increases once we let factor-biased technological change vary between sectors and across countries.
Key-words : Sector-biased technology shocks; Factor-augmenting effciency; Open economy; Labor reallocation; CES production function; Labor income share.
JEL Classification : E25; E32; F11; F41; 033