Pace versus type: the effect of economic growth on unemployment and wage patterns

Much of the literature on growth and unemployment has emphasized the effect of the increasing pace of technological progress on job instability and wage inequality. But less attention has been placed on how the change in the very nature of work, due to technical change, affects the rate of job destruction, and hence the level of unemployment. We argue that technological progress modifies on-the-job learning and, through general equilibrium effects, unemployment and wage dispersion. In the context of the canonical Mortensen and Pissarides [Rev. Econ. Dynam. (1998) 733] model, we show that, in a routine world, this "on-the-job learning effect" can offset the creative destruction effect induced by an increase in the pace of technological change on unemployment, whereas it can amplify it as jobs become less routine. Moreover, the relationship between wage dispersion and growth can be non monotone. This finding helps explain the wage compression/expansion observed in time series data. © 2004 Elsevier Inc. All rights reserved.