Technical Progress, Life of Capital and Employment

This paper examines the hypothesis of a quickening of capital replacement, triggered by the acceleration of technical progress. We present a microeconomic model of replacement processes inspired by the “unbalanced growth” school, highlighting the role of productivity in determining the growth path. The model distinguishes between two types of enterprise, stagnant and progressive, on the basis of productivity trends and shows that prolonged acceleration in the rate of technical progress may be sufficient reason for a rational entrepreneur to make replacements earlier, thus approaching a system of continuous restructuring. We then discuss the main theoretical implications for aggregate employment and the fundamental questions of measurability of the effects. To this end, we undertake an empirical test of aggregate data for the manufacturing sector in four leading economies (the United States, France, Germany, the United Kingdom) from 1970 to 1991. We estimate labour demand functions in which the traditional explanatory variables are supplemented by proxies that capture the effect of a shortening of the life of capital equipment (the replacement rate and the ratio between depreciation and gross fixed capital formation). The empirical evidence confirms the shortening of the average lifetime of capital and is consistent with the main implications of the microeconomic model. The results show, at least indirectly, a negative correlation between an increase in speed of technical progress and the growth of employment.