Macroeconomic Uncertainty and Capital-Skill Complementarity
IMF Working Papers, August 4, 2023
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Bibliographic details
- Authors: Anna Belianska
- Published: August 4, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400250316.001
Summary
- Author: Anna Belianska
- Date: August 4, 2023
- Core question: Impact of macroeconomic uncertainty on labor market outcomes for skilled and unskilled workers and the propagation mechanisms behind these effects.
- Central result: Uncertainty shocks are recessionary with the unskilled experiencing a steeper fall in employment. A New Keynesian DSGE model with skill heterogeneity and wage rigidities, combined with precautionary labor supply, significantly amplifies contractionary effects of uncertainty on the real economy.
Key empirical findings
- Uncertainty shocks are recessionary.
- The unskilled experience a steeper fall in employment relative to skilled workers.
- The evidence motivates introducing a new propagation channel linking uncertainty, wage rigidities, skill heterogeneity, and precautionary labor supply.
Model and propagation mechanisms
- Model framework: New Keynesian DSGE model with:
- skill heterogeneity (skilled and unskilled workers),
- wage rigidities,
- precautionary labor supply.
- Mechanism highlighted:
- Wage rigidities and precautionary labor supply interact with skill heterogeneity to amplify contractionary effects of uncertainty on employment and the real economy.
- Analytical emphasis: Capital-skill complementarity is a focal element in understanding differential employment responses across skill groups.
Policy implications and interpretation
- Policies that ignore heterogeneity across skill groups and the role of wage rigidities may understate the labor-market impact of uncertainty shocks.
- Measures that reduce macroeconomic uncertainty or mitigate wage rigidities could lessen the disproportionately large employment losses among the unskilled.
- Considering precautionary labor supply motives is important when designing labor-market or stabilization policies aimed at cushioning uncertainty-driven downturns.
Subjects and keywords
- Subjects: Employment, Labor, Labor supply, Skilled labor, Wages
- Keywords: A. Detrending method, A. solution method, Capital-skill complementarity, Employment, Europe, Labor supply, Relative wages, Skill premium., Skilled labor, Stochastic volatility, SVAR impulse response, SVAR methodology, uncertainty shock, Wages
Source: IMF Working Paper — "Macroeconomic Uncertainty and Capital-Skill Complementarity" by Anna Belianska, August 4, 2023.
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