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Technology Shocks and the Labor-Input Response: Evidence from Firm-Level Data

Authors


  • We would like to thank Malin Adolfson, Susanto Basu, Oskar Nordström-Skans, Saverio Simonelli, an anonymous referee, and seminar participants at Sveriges Riksbank for useful comments and Björn Andersson and Magnus Lundin for help with preparing the data. Part of this project was conducted while Carlsson was visiting the Robert Schuman Centre for Advanced Studies at the European University Institute, whose hospitality is much appreciated. Carlsson gratefully acknowledges financial support from the Jan Wallander and Tom Hedelius Foundation. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Executive Board of Sveriges Riksbank.

Abstract

We study the relationship between technology shocks and labor input on Swedish firm-level data using a production function approach to identify technology shocks. Taking standard steps yields a contractionary contemporaneous labor-input response in line with previous studies. This finding may, however, be driven by measurement errors in the labor-input variable. Relying on a unique feature of our data set, which contains two independently measured firm-specific labor input measures, we can evaluate the potential bias. We do not find that this bias conceals any true positive contemporaneous effect. The results thus point away from standard flexible-price models and toward models emphasizing firm-level rigidities.

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