Patents as a Measure of Technology Shocks and the Aggregate U.S. Labor Market

In a market-clearing labor market model, cointegration arises between labor services, real wages, and I(1) technology shocks with two cointegrating vectors in the error correction VAR from the market. Using patent data to measure technology shocks, patents are found to be I(1), they are cointegrated with aggregate measures of labor services and real wages, and there are two cointegrating vectors in the estimated VAR as implied by the model. Parameter instability is observed in estimated cointegrating vectors. The model's assumptions and implications are supported in data prior to the formation of the OPEC cartel but not in other subsamples studied.