Technology shocks and sectoral labour market spill-overs

Abstract

In a multi-sector model estimated on U.S. data, we apply standard long-run restrictions to investigate the labour market consequences of investment-specific and neutral technology shocks. We set up a global VAR model where aggregate technology shocks feed onto sector-specific dynamics and then propagate back through the network structure of the economy. At the aggregate level, our results are consistent with the wealth of existing empirical studies where investment-specific technology shocks trigger favourable employment responses, in contrast to neutral technology shocks. At a disaggregate level, however, we uncover the significant contribution of sectoral spill-overs in response to technology shocks, particularly in driving the adjustment towards long-term equilibrium.