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Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?

Other versions: FRBP WP 05-5, On the Employment Effects of Technology: Evidence from US Manufacturing for 1958-1996 ( PIER WP 03-004, FRBR WP 03-6)

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 TFP shock, whereas far more industries exhibit an employment increase in response to a permanent increase in TFP. 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.

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