Technology shocks and sectoral labour market dynamics

Abstract

The past few decades have witnessed a rapid employment growth in sectors characterised by an increased use of productivity-enhancing technologies, together with a slowdown in more traditional sectors. Using data on twelve US industries, over the 1992-2013 period, we estimate a multi-sector model of gross job flows and investigate to what extent neutral and investment-specific technology shocks affect sectoral labour market dynamics. We propose a new identification strategy for these two technology shocks based on statistical evidence combined with an original empirical specification. The results indicate that positive investment-specific technology shocks have favourable employment consequences, increasing job creation and decreasing job destruction in most sectors. However, in response to neutral technology shocks we do not find clearcut evidence of overall employment reallocation, which would have supported the creative-destruction dynamics hypothesis. Despite revealing a high degree of heterogeneity, at the aggregate level our findings are consistent with the wealth of existing empirical literature.