LABOR SHARE AND PRODUCTIVITY DYNAMICS
(UNIVERSITY OF BRISTOL)
OCTOBER 30, 2019
Abstract: We present a novel way to model technological shocks, with the feature that it can be biased towards more recently installed production units. We show that at one extreme, the shock is like a neutral technological shock, while at the other end of the spectrum, it resembles the spirit of investment specific technological shocks, since it affects newly created machines the most. To make these ideas operational, we embed our proposed shocks in a model with putty-clay technology (where the notion of new and old firms is clear) and estimate the shock process using salient cyclical features of U.S. labor markets and its labor share. Our estimates favor investment specific technological-type shocks as the main driver of business cycles. In addition, it provides a feasible explanation of the cyclical behavior of the labor share.