New Technology, Demand and Employment

In the analysis of the impact of new technology on employment there are six major modelling decisions to make: (i) How should technology be represented? One needs a representation of technology that allows for the multiplier effects that are present in real world technology, e.g. the expansion of output in one sector requires increased levels of intermediate inputs from other sectors. In this chapter we consider a two-sector economy which allows such multiplier effects to exist, but does not prevent a reasonably simple derivation of conclusions. (ii) How does the economy react to disequilibrium? If one specifies, in a Walrasian manner, that prices react instantaneously to notional disequilibria, then there will be no unemployment resulting from new technology (see Neisser, 1942). In this chapter prices are assumed to not so react, and thus we may specify that our model is Keynesian in character. Given this Keynesian character, we now need to decide on (iii) and (iv). (iii) How do wages and prices move over time? We will specify that, subject to the condition of complementary slackness (see below), wages will remain constant over time, and that prices will then be determined by the usual two-sector model price relations (see Hicks, 1965).