This paper studies whether technology shocks raise or lower work hours in Japan. Influential studies of the US data, such as Gal Am (1999), find that, in response to a positive technology shock, work hours declines. We extend Uhlig (2001)'s VAR with sign restrictions and impose a restriction that is qualitatively similar to the one employed by Gal Am and others. Our method, however, has the advantage that it allows us to include any variable in the VAR in its levels or first differences. We find that work hours increase in response to a positive technology shock, when all the variables are entered in the VAR in their levels. Hence, compared to the previous studies, our results are more supportive of the view that technology shocks are an important driving force of business cycle fluctuations.
