D0E29 L9 - D0E29 - Theory of Economic Growth Lecture 8...

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Unformatted text preview: D0E29 - Theory of Economic Growth Lecture 8 Spring term 2008 Prof. Dr. Maarten Goos, Anna Salomons M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 1 / 66 Today&s class Technological progress, wages and unemployment Discussion of "Incensed about Inequality" ) readings: "Incensed about Inequality" and "Economic Growth and Income Inequality: Reexamining the Links". M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 2 / 66 Technological progress, wages and unemployment M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 3 / 66 Technological progress in the Solow model The Solow assumes all workers are identical and labor markets are perfectly competitive . The Solow model predicts that, in the steady state, real wages grow due to technological progress. There is no unemployment and no wage inequality . The Solow model thus presents a very optimistic view of technological progress. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 4 / 66 Technological progress, unemployment and wage inequality There are also more pessimistic views of technological progress. Technological unemployment & a concept associated with the technocracy movement during the Great Depression& is the argument that unemployment comes from the introduction of machinery. The idea that technological progress has resulted in increased wage inequality because technological progress has been biased towards skilled or educated workers. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 5 / 66 Technological progress, unemployment and wage inequality Does technological progress lead to unemployment? No . Theoretically, there is no reason to expect a systematic relation between technological progress and movements in unemployment in the long-run. Empirically, technological progress is negatively (and not positively) correlated with unemployment in the long-run. In this sense, the productivity slowdown after the 1970 can explain the rise in unemployment in Europe. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 6 / 66 Technological progress, unemployment and wage inequality Does technological progress lead to wage inequality? Yes. Technological progress is biased towards skilled workers and can therefore explain an important part of the rise in wage inequality if wages are su¢ ciently &exible. Technological progress explains an important part of the increase in wage inequality over the past 25 years in the US and the UK. M. Goos, A. Salomons ( CES, KU Leuven) D0E29 L9 7 / 66 Technological progress and unemployment A production function with technological progress can be written as: Y = F ( K , AL ) Leaving aside matters concerning capital, then: Y = AL Output is produced using only labor, L , and each worker produces A units of output. Increases in A represent technological progress....
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D0E29 L9 - D0E29 - Theory of Economic Growth Lecture 8...

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