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Unemployment and the Direction of Technical Change

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  • Gregory Casey
  • Gregory P. Casey

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.

Suggested Citation

  • Gregory Casey & Gregory P. Casey, 2024. "Unemployment and the Direction of Technical Change," CESifo Working Paper Series 11214, CESifo.
    • Handle: RePEc:ces:ceswps:_11214
    as

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    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    2. Nicholas Bloom & Charles I. Jones & John Van Reenen & Michael Webb, 2020. "Are Ideas Getting Harder to Find?," American Economic Review, American Economic Association, vol. 110(4), pages 1104-1144, April.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Charles I. Jones & Dean Scrimgeour, 2008. "A New Proof of Uzawa's Steady-State Growth Theorem," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 180-182, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    growth; unemployment; directed technical change;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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