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Broken trend stationarity of hours worked

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Abstract:

The estimated impact of a technology shock on hours worked using Structural Vector Autoregressions (SVARs) depends to a great extent on whether or not hours worked is considered to be integrated of first order. It is shown in this article that the widely analysed time series of hours worked per capita in the US business sector evolves around a broken linear trend. When this fact is taken into account, the unit root null is rejected by recently proposed tests. Therefore, it can be stated that empirical specifications with hours in first differences are not recommended. It seems more appropriate to control for the presence of this shift in the deterministic component. We also draw this conclusion from a bivariate model for both productivity growth and hours worked. Our results suggest that technology improvements have a negative but nonsignificant effect on hours only in the very short run. This impact later becomes positive and statistically significant after five periods.

Keywords: C12; C22; E00; SVAR; structural change; technology shocks; unit roots

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.583225

Affiliations: Facultad de Ciencias Económicas y Empresariales, Departamento de Análisis Económico, Gran Vía 2Zaragoza 50005, Spain

Publication date: October 1, 2012

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