International Trade, Technological Shocks and Spillovers in the Labour Market: A GVAR Analysis of the US Manufacturing Sector

36 Pages Posted: 25 Feb 2007

See all articles by Isabel Vansteenkiste

Isabel Vansteenkiste

European Central Bank (ECB)

Paul Hiebert

European Central Bank (ECB)

Date Written: February 2007

Abstract

We empirically analyse the response of US manufacturing labour market variables to various shocks, notably to trade openness and technology. The econometric approach involves an application of the recently developed global VAR (GVAR) methodology of Dees, DiMauro, Pesaran, and Smith (2005) to 12 manufacturing industries over the period 1977-2003. This frame-work allows for an assessment of both shocks to weakly exogenous variables and intra-industry spillovers. In this vein, beyond a standard set of labour-market related variables (employment,real compensation, productivity and capital stock) and exogenous factors (a sector-specific measure of trade openness, along with common technology and oil price shocks), specific measures of manufacturing-wide variables are included for each sector. Generalised impulse responses indicate that increased trade openness negatively affects real compensation, has negligible employment effects and leads to higher labour productivity. These impacts, however, are relatively weaker those induced by technology shocks, with the latter positively and significantly affecting both real compensation and employment. There is also evidence of positive spill-overs across industries from sector-specific employment and productivity shocks. Impact elasticities suggest strong intra-sectoral linkages for employment and capital stock formation, contrasting with weak linkages for what concerns real compensation and productivity.

Keywords: Trade, technological change, labour market, global VAR (GVAR), impulse responses

JEL Classification: F16, J01, O33

Suggested Citation

Vansteenkiste, Isabel and Hiebert, Paul, International Trade, Technological Shocks and Spillovers in the Labour Market: A GVAR Analysis of the US Manufacturing Sector (February 2007). ECB Working Paper No. 731, Available at SSRN: https://ssrn.com/abstract=963068

Isabel Vansteenkiste (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Paul Hiebert

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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