TY - JOUR
T1 - Technology-policy interaction in frictional labour-markets
AU - Hornstein, Andreas
AU - Krusell, Per
AU - Violante, Giovanni L.
N1 - Funding Information:
Acknowledgements. This paper was previously entitled “Vintage Capital In Frictional Labor Markets” and it is a substantially revised version of the Federal Reserve Bank of Richmond Working Paper 02-2, “Vintage Capital as an Origin of Inequalities”. Krusell thanks the National Science Foundation. Violante thanks the CV Starr Center for research support and the Federal Reserve Bank of Minneapolis for its hospitality. We are grateful to the editor and referees for helpful comments, and Glenda Quintini for providing the data on vacancies in OECD countries. Any opinions expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.
PY - 2007/10
Y1 - 2007/10
N2 - Does capital-embodied technological change play an important role in shaping labour-market outcomes? To address this question, we develop a model with vintage capital and search-matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms, matched as well as vacant. We demonstrate that capital-embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations. In addition, the presence of labour-market regulations (unemployment benefits, payroll taxes, and firing costs) exacerbates these effects. Thus, the model is qualitatively consistent with some key features of the European labour-market experience relative to that of the U.S.: it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share. A calibrated version of our model suggests that this technology-policy interaction could explain a sizeable fraction of the observed differences between the U.S. and Europe.
AB - Does capital-embodied technological change play an important role in shaping labour-market outcomes? To address this question, we develop a model with vintage capital and search-matching frictions where irreversible investment in new vintages of capital creates heterogeneity in productivity among firms, matched as well as vacant. We demonstrate that capital-embodied technological change reduces labour demand and raises equilibrium unemployment and unemployment durations. In addition, the presence of labour-market regulations (unemployment benefits, payroll taxes, and firing costs) exacerbates these effects. Thus, the model is qualitatively consistent with some key features of the European labour-market experience relative to that of the U.S.: it features a sharper rise in unemployment and a sharper fall in the vacancy rate and the labour share. A calibrated version of our model suggests that this technology-policy interaction could explain a sizeable fraction of the observed differences between the U.S. and Europe.
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U2 - 10.1111/j.1467-937X.2007.00449.x
DO - 10.1111/j.1467-937X.2007.00449.x
M3 - Article
AN - SCOPUS:34548523773
SN - 0034-6527
VL - 74
SP - 1089
EP - 1124
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 4
ER -