Technology, Employment, and Cleansing Effects: An Empirical Study of the G-7

다국어 초록 (Multilingual Abstract)

This paper revisits the relationship between technology shocks and employment, which has caused considerable controversy since the appearance of Galí (1999). The organizing framework is cleansing effects, which posits recessions as the appropriate time for engaging in activities aimed at improving productivity. We examine the consistency of cleansing effects using G-7 data. Evidence reveals that the theoretical predictions from the cleansing effect are well supported across countries. Importantly, a positive technology shock increases employment, which is in contrast to the result of Galí. We also propose a simple test that can serve to distinguish between the cleansing and Galí models statistically. The test rejects the adequacy of Galí’s specification in favor of the cleansing effect, with the possible exception of Japan.

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