Unemployment and the Direction of Technical Change

Gregory Casey and Gregory P. Casey
Authors registered in the RePEc Author Service: Gregory P. Casey

No 11214, CESifo Working Paper Series from CESifo

Abstract: I construct and analyze a growth model in which technical change can increase unemployment. I first analyze the forces that deliver a constant steady state unemployment rate in this setting. Labor-saving technical change increases unemployment, which lowers wages and creates incentives for future investment in labor-using technologies. In the long run, this interaction generates a balanced growth path that is observationally equivalent to that of the standard neoclassical growth model, except that it also incorporates a positive steady state level of unemployment and a falling relative price of investment. I also study the effects of a permanent increase in the ability of R&D to improve labor-saving technologies. In the long run, this change leads to faster growth in output per worker and wages, but it also yields higher unemployment and a lower labor share of income. In the short run, this change exacerbates existing inefficiencies and slows economic growth.

Keywords: growth; unemployment; directed technical change (search for similar items in EconPapers)
JEL-codes: E24 O33 O40 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-gro and nep-lab
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Journal Article: Unemployment and the direction of technical change (2024)
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