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Do technological improvements in the manufacturing sector raise or lower employment?

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  • Yongsung Chang
  • Jay H. Hong
Abstract
We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas far more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds that a labor productivity shock has a strong negative effect on employment. There are tantalizing and interesting differences between TFP and labor productivity. We argue that TFP is a more natural measure of technology because labor productivity reflects shifts in the input mix as well as in technology.

Suggested Citation

  • Yongsung Chang & Jay H. Hong, 2005. "Do technological improvements in the manufacturing sector raise or lower employment?," Working Paper 05-02, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:05-02
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    Keywords

    Employment; Business cycles;

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