On the employment effects of productivity shocks: The role of inventories, demand elasticity, and sticky prices

Yongsung Chang, Andreas Hornstein, Pierre Daniel Sarte

Research output: Contribution to journalArticle

20 Citations (Scopus)


Whether technological progress raises or lowers employment in the short run has been the subject of much debate in the recent years. We show that cross-industry differences in inventory holding costs, demand elasticities, and price rigidities potentially all affect employment decisions in the face of productivity shocks. In particular, the employment response to a permanent productivity shock is more likely to be positive the less costly it is to hold inventories, the more elastic industry demand is, and the more flexible prices are. Using data on 458 4-digit U.S. manufacturing industries over the period 1958-1996, we find statistically significant effects of variations in inventory holdings and demand elasticities on short-run employment responses, but less conclusive evidence pertaining to the effects of measured price stickiness.

Original languageEnglish
Pages (from-to)328-343
Number of pages16
JournalJournal of Monetary Economics
Issue number3
Publication statusPublished - 2009 Apr 1


All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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