Technology-Driven Unemployment

Gregory Casey

No 302, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: To examine the relationship between technological progress and unemployment, I study a model that features putty-clay production, directed technical change, and wage bargaining. The first goal of this project is to understand the forces that deliver a constant steady state unemployment rate in the presence of labor-saving technical change. 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 is also incorporates a positive steady state level of unemployment. The second goal is to understand the effects of technological breakthroughs that permanently lower the cost of creating new labor-saving technologies. Breakthroughs lead to faster growth in output per worker and wages, but also yield higher long-run unemployment and a lower labor share of income. Despite increasing the speed of technological progress, breakthroughs also slow economic growth in the short-run.

Date: 2018
New Economics Papers: this item is included in nep-dge, nep-gro and nep-ino
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