The dynamics of hours worked and technology

Abstract

The response of hours worked to technology shocks in the postwar US economy has increased over time. We offer a structural interpretation of this important time-varying macroeconomic moment. The time varying patterns captured by a structural VAR are consistent with those obtained from a parsimonious RBC model with a less than unitary elasticity of substitution between capital and labour (σ). The observed changes in the response of hours are attributable to increases in the magnitude of the degree of capital-labour substitution. Finally, we conjecture that the observed time-variation in σ is related to changes in the skill composition of the work force and biases in technological change.