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Is a higher growth rate of total factor productivity (TFP) associated with a lower unemployment rate? Theory does not help much here, as it depends whether new technology can be capitalized in existing jobs or not. If it is, then any improvement in technology improves the marginal return of labor, and more workers are hired. If it is not, labor and technology are essentially substitutes, and workers are displaced as new technology is adopted. Finally, unemployment is also impacted by how much technology is embedded in new jobs. Distinguishing between all these effects becomes an empirical matter.
Christopher Pissarides and Giovanna Vallanti show that the first story dominates: TFP growth reduces unemployment. They develop a growth model à la Mortensen-Pissarides with capital, different types of technologies (disembodied, embodied), and different wage equations. The vintage of jobs is important, as only new ones can benefit from one type of technology progress. A calibration exercise with extensive robustness analysis then gives a clear result.
This analysis is done at the aggregate level. There is no doubt that some technology improvements have led to some firings. A prime example is how typographers disappeared from printing plants within a few years of the adoption of desktop publishing. But this allowed to hire others, hopefully reconverted typographers.
Tuesday, April 15, 2008
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1 comment:
I don't think there should necessarily be any long-term relationship between unemployment and productivity.
Just a little thinking exercise... What if for every amount that technology reduces workload or increases productivity, workers cut back their hours an equal amount. You produce 100 widgets per hour, and technology comes along and doubles it to 200 widgets per hour. Instead of necessarily firing half of the widget makers, each could work 50% less. All other things being equal, they should have their hourly income double, which would allow them the same income when they cut their hours in half. The end result being that they have more leisure time.
Of course in reality, half of those workers will be fired while the others will continue working full time. But those productivity gains will be passed around to create new jobs for those fired employees... Some gains are are "lost" to the cost of the technology (and maybe 1 widget maker becomes a maker of the technology). Some of the gains go to better profits. Increased competition from competitors utilizing the same technology means some gains go to lower prices. Both the increased profits and the lower prices means people have more money for other goods and services, increased employment in those areas.
So I just see productivity gains as benefiting either how much someone can consume, or how much less time they can spend working to maintain the same real income. And if someone does choose to work less, then I'd think that would reduce unemployment as someone else takes up the slack.
Hope that makes as much sense to you as it does to me ;)
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