On the employment effects of productivity shocks: The role of inventories, demand elasticity, and sticky prices

Whether technological progress raises or lowers employment in the short run has been the subject of much debate in the recent years. We show that cross-industry differences in inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face o...

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Bibliographic Details
Published in:Journal of monetary economics 2009-04, Vol.56 (3), p.328-343
Main Authors: Chang, Yongsung, Hornstein, Andreas, Sarte, Pierre-Daniel
Format: Article
Language:English
Subjects:
Business investment
Economic impact analysis
Economic shock
Elasticity of demand
Employment
Employment level
Inventories
Inventory investment
Manufacturing
Productivity
Productivity Employment Inventory investment Sticky prices
Productivity growth
Sticky prices
Studies
U.S.A
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Summary:Whether technological progress raises or lowers employment in the short run has been the subject of much debate in the recent years. We show that cross-industry differences in inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face of productivity shocks. In particular, the employment response to a permanent productivity shock is more likely to be positive the less costly it is to hold inventories, the more elastic industry demand is, and the more flexible prices are. Using data on 458 4-digit U.S. manufacturing industries over the period 1958–1996, we find statistically significant effects of variations in inventory holdings and demand elasticities on short-run employment responses, but less conclusive evidence pertaining to the effects of measured price stickiness.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2009.02.004