Dynamic effects of aggregate supply and demand and productivity disturbances on the demand for labor: the case of Puerto Rico

Abstract

This paper analyses the response of the demand for labor to supply, demand, and productivity shocks in Puerto Rico through the structural identification scheme proposed by Blanchard and Quah (1989). We show that the response of labor demand to productivity is greater in the short run than to supply and demand shocks. However, demand shocks explain a greater proportion of unexpected labor demand fluctuations in the long run than supply shocks, while the effects of the shocks can have persistence of up to 10 years.