Title: The effects of productivity shocks and job destruction in a changing world
Authors: Michael Ellington - University of Liverpool (United Kingdom) [presenting]
Chris Martin - University of Bath (United Kingdom)
Bingsong Wang - University of Warwick (United Kingdom)
Abstract: A ``second generation'' Bayesian time-varying parameter VAR model with stochastic volatility, combined with a simple search frictions model of the labour market, is used to explore the changing relationships between labour productivity, unemployment, vacancies and real wages using US data from 1962-2016. We find marked changes in labour market linkages suggesting that the key mechanisms vary throughout time. One key finding is that the responsiveness of wages to identified shocks gradually increases throughout our sample; whilst the sensitivity of unemployment and vacancies to these shocks remains stable. We show that a simple search frictions model is unable to match our empirical results when changing structural parameters. This suggests that the search frictions model requires augmenting in order to capture true US labour market dynamics.