Stage-specific technology shocks and employment : Could we reconcile with the RBC models ?

This paper analyses the response of labor input to technology shocks in an estimated two-stage production framework with both price and wage stickiness and stage-specific shocks to productivity. Our model features a vertical input-output structure with imperfect mobility of labors across stages. The estimation uses the maximum likelihood technique applied to the post-war US data. Our findings could easily match the standard RBC models predictions : A shock to productivity in the intermediate good production stage i) leads to an increase in both stage-specific labor and the aggregate labor and ii) explains a large proportion of the volatility of both the real GDP and the aggregate labor. Besides, regarding the output-labor correlation, the model does a very good job in matching the data.