Measures of Per Capita Hours and their Implications for the Technology-Hours Debate

Structural vector autoregressions give conflicting results on the effects of technology shocks on hours. The results depend crucially on the assumed data generating process for hours per capita. We show that the standard measure of hours per capita has significant low frequency movements that are the source of the conflicting results. HP filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root. We provide alternative measures of hours per capita that adjust for low frequency movements in government and nonprofit employment, as well as the age composition of the population. When the new measures are used to determine the effect of technology shocks on hours using long-run restrictions, both the levels and the difference specifications give the same answer: hours decline in the short-run in response to a positive technology shock.