Technology, Growth, and the Labor Market brings together research by economists from academia and the Federal Reserve System. The first section of the volume includes discussions by monetary policymakers with firsthand experience in determining how technology affects productivity, inequality, and macroeconomic growth. Papers in the second section discuss the sources of the surge in labor productivity growth during the latter half of the 1990s and present forecasts of labor productivity growth rates during the next few years. In the third section, the papers focus on the role of technological advances in changes in earnings inequality in the labor market. The authors examine whether inequality should be viewed as a causal result of skill-biased technological change or whether there is a missing link - or perhaps no link - between changes in technology and changes in wage inequality. The final section explores the relationships between computer investment, worker skills, human resource practices, and productivity at the industry and firm levels.

The labor market occupies center stage in modern theories of fluctuations. The most important phenomenon to explain and understand in a recession is the sharp decline in employment and jump in unemployment. This chapter for the Handbook of Macroeconomics considers explanations based on frictions in the labor market. Earlier research within the real business cycle paradigm considered frictionless labor markets where fluctuations in the volume of work effort represented substitution by households between work in the market and activities at home. A preliminary section of the chapter discusses why frictionless models are incomplete they fail to account for either the magnitude or persistence of fluctuations in employment. And the frictionless models fail completely to describe unemployment. The evidence suggests strongly that consideration of unemployment as a third use of time is critical for a realistic model. The two elements of a theory of unemployment are a mechanism for workers to lose or leave their jobs and an explanation for the time required for them to find new jobs. Theories of mechanism design or of continuous re-bargaining of employment terms provide the first. The theory of job search together with efficiency wages and related issues provides the second. Modern macro models incorporating these features come much closer than their predecessors to realistic and rigorous explanations of the magnitude and persistence of fluctuations.

Chapter 2 studies frictions in firm's hiring and firing decisions in an environment with dual labor markets. More firms execute employment decisions in two labor markets: a permanent (regular) market with firing costs and a frictionless temporary labor market. This paper studies the employment response of firms to heightened idiosyncratic risk and firing rigidity. Rising firing rigidity in the regular market and heightened risks reduce employment and output, which creates large welfare loss. By introducing a temporary labor market, firms switch from regular employment to temporary employment and reduce total employment loss. Thus, temporary employment creates a buffer for firms' employment decisions and for the economy's welfare. However, it cannot fully compensate the efficiency cost from rising firing cost and risk.

My dissertation examines how labor market adjustment happens in times of economic downturns or policy changes. Chapter 1 analyzes how the contribution of intensive margin adjustments to the cyclical fluctuations in total hours worked has increased in the US since the 1980s. I document that the job tenure length has increased during this period and labor hours adjustments in recessions are more prominent in economies with higher job tenure lengths. I build a search-and-matching model with part-time workers and job-specific human capital accumulation. With the model, I claim that the improvement in initial match quality can account for the increased use of intensive margin adjustments along the business cycle. A policy simulation shows that subsidizing intensive margin adjustments via Short-time compensation (STC) policy is more effective in reducing unemployment volatility when the initial match productivities are higher and job separations are lower. Chapter 1 explored the impact of job-specific human capital on intensive margin adjustments, while Chapter 2 examines the role of ex-ante worker heterogeneity. Chapter 2 finds that the pool of IPT workers increasingly consists of high-wage workers who are more attached to the labor market during recessions. According to the microdata from the Current Population Survey, this cyclical change is driven by the inflows into the IPT pool, especially the full-time to IPT flow. The demographic compositional changes of the IPT pool in recessions suggest a new channel through which the intensive margin adjustments can affect aggregate unemployment fluctuations by driving up firms' hiring standards during economic downturns. Chapter 3 focuses on a natural experiment in Oregon and Florida that changed the enforceability of non-compete agreements (NCA) between firms and workers. Using the experiment, I find that banning NCA can have a negative consequence on low-wage workers and an unintentional distributional impact. The unemployment duration increases after the ban which exacerbates the loss of general human capital of unemployed workers. I propose the crowding out effect of unemployed workers due to the ban can cause what I observe in the data and the potential cost of banning NCA for workers. Together, these chapters provide insights into different aspects of labor market dynamics, highlighting the importance of initial match quality, worker heterogeneity, and policy implications for labor market institutions

This book provides an empirical and theoretical examination of the short- and medium run impacts of technological advances on the employment and wages of workers which differ in their earned educational degree. Furthermore, by introducing labor market frictions and wage setting institutions the author shows the importance of such imperfections in order to replicate empirical facts.

This series of essays studies the observed fluctuations in the aggregate economy and the factors behind. I first examine the cyclical behaviors of the aggregate productivity shocks, as measured by the aggregate Solow residual and how it relates to the technology adoption decision done by individual firms. Then I divert my attention to the labor market, and enquire into (i) why workers with different skills show such significant differences as observed in the U.S. in terms of their unemployment rates and wages; and (ii) what the so-called labor wedge might reflect. The first chapter of my dissertation formalizes Schumpeter's idea that the firm level technological changes are what cause changes in the aggregate Solow residual. The analysis starts with a characterization about how new firms make their technology adoption decision, taking into account both the average productivity of the candidate technology and the risk associated with its adoption. Then through the creative destruction process, these newly adopted technologies gradually prevail in the market, and eventually manifest themselves in the aggregate Solow residual. The quantitative experiments confirm that the Schumpeterian story told in this chapter is able to amplify the traditional aggregate productivity shock, as well as to transform other shocks to the economy into variations in the Solow residual, and thus generating significant business cycle fluctuations. The model also has a few reasonable firm-level implications. The second chapter develops a framework for the study of the labor market dynamics when workers differ in their production efficiency, which I call skills in the chapter, and when there are search frictions. Compared to the standard business cycle model with frictional labor market, skill heterogeneity in my model creates dispersion in the match surpluses between the workers and the firms, and thus necessitates a screening process that results in the termination of the unprofitable matches in equilibrium. This endogenous separation mechanism disproportionately influences the employment status of the less-skilled workers and not only exposes them to larger layoff risks, but also inflicts on them greater difficulties in terms of reestablishing their employment relationship with the firms. Quantitatively, the model has cross-sectional implications for the unemployment rates and the wages that are consistent with the observed differences across skill groups in the U.S. labor market. The last chapter carefully studies the hypothesis that the empirical labor wedge as defined by Robert Shimer may reflect the existence of a household production sector that is largely uncounted by the standard macroeconomic framework. By enriching an otherwise standard real business cycle model with a household production sector, I find that if the hours worked at home and the utility obtained from the home-produced goods are not included in the calculation, the model generates a wedge between the marginal product of labor (MPL) and the household's marginal rate of substitution between consumption and leisure (MRS) that assembles the empirical labor wedge. With reasonable parameter values, the quantitative properties of the model-predicted labor wedge also match those of their empirical counterpart.