Template-Type: ReDIF-Paper 1.0
Author-Name: Luisito Bertinelli
Author-Name-First: Luisito
Author-Name-Last: Bertinelli
Author-Name: Olivier Cardi
Author-Name-First: Olivier
Author-Name-Last: Cardi
Author-Name: Romain Restout
Author-Name-First: Romain
Author-Name-Last: Restout
Title: Labor Market Effects of Technology Shocks Biased toward the Traded Sector
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 generates a reallocation of labor toward the non-traded sector 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 economy model with flexible prices can reproduce the labor market effects we document empirically once we allow for imperfect mobility of labor, gross substitutability between home- and foreign-produced traded goods, and factor-biased technological change. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we estimate increases once we let factor-biased technological change vary between sectors and across countries. 
Creation-Date: 2021
File-URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2021_012.pdf
File-Format: application/pdf
Number: 342990229
Classification-JEL: E21, E32, F11, F41, O33
Keywords: Sector-biased technology shocks, Factor-augmenting efficiency, Open economy, Labor reallocation, CES production function, Labor income share
Handle: RePEc:lan:wpaper:342990229