Technological Progress, Wages, and Unemployment
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Transcript Technological Progress, Wages, and Unemployment
Technological Progress, Wages, and
Unemployment
Observations:
Technological progress allows more output from the
same number of workers
Technological progress leads to the creation of new
goods and the disappearance of old goods
Two Interpretations of the Observations:
1. Optimistic: More output with the same workers
2. Pessimistic: Same output with fewer workers
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #1
Productivity, Output, and Unemployment
in the Short Run
Recall:
Y = F(K,AN)
A= the state of technology
Assume K does not influence output
Then:
Y=AN and
Output is produced using only labor (N)
Increases in A represent technological progress
Y/N = A
So N=Y/A
When productivity increases, does output increase
enough to avoid a decrease in employment?
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #2
Productivity, Output, and Unemployment
in the Short Run
Technological Progress, Aggregate Supply, &
Aggregate Demand -- A Review
Price Level, P
AS (A)
• AD: P => (M/P) => i => Y
• AS: Given Pe,
Y => u => W => P
• Equilibrium Y, P, equilibrium
in labor, goods, &
financial markets
P
• N = Y/A
AD (A)
Y
Output, Y
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #3
Productivity, Output, and Unemployment:
The Short Run
Technological Progress, Aggregate Supply, &
Aggregate Demand -- A Review
Price Level, P
AS (A)
AS´ (A´)
• Productivity increases
A to A´
• At A´ production
cost & AS shifts to
AS´ (A´)
P
• The impact A´ on AD
is uncertain: assume
AD´ (A´)
AD´ (A´)
• Equilibrium Y
increases to Y1
AD (A)
Y
Blanchard: Macroeconomics
Y1
Output, Y
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #4
Productivity, Output, and Unemployment:
The Short Run
Did the increase in productivity increase
employment? The Empirical Evidence
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #5
Productivity, Output, and Unemployment
in the Short Run
The Empirical Evidence
Observation:
Question:
Hint:
Strong positive relation between output
growth and productivity growth
But what is the causation?
Okun’s Law & labor hoarding during recessions
Conclusion:
When an exogenous change in productivity
(technology) occurs--sometimes unemployment
rises and sometimes falls in the short-run.
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #6
Productivity and the Natural Rate of
Unemployment -- the Medium Run
Price Setting & Wage Setting Revisited
Price Setting:
W
P (i )
A
W
If A increases,
falls, which lowers P given W
A
Wage Setting:
W AeP eF (u, z )
the expected level of productivity is incorporated
into wages set in bargaining.
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #7
Productivity and the Natural Rate of
Unemployment -- the Medium Run
The Natural Rate of Unemployment
Assuming expectations of prices and productivity
are correct:
W
P (i )
Price Setting:
A
W
A W
:
Real Wages:
depends on A&u
P 1 P
Wage Setting:
W AeP eF (u, z)
Pe=P & Ae=A
W
W
AF (u, z ) :
Real Wages:
depends on A,u,
P
P &z
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #8
Productivity and the Natural Rate of
Unemployment -- the Medium Run
The Natural Rate of Unemployment
A´F(u,z)
• A increases 5%
AF(u,z)
• A´ = 1.05A
Real Wage, W/P
A´
• 1 increased 5%
• A´F(u,z) increased 5%
B´
A´
1
A
1 ´
• un unchanged
Price
setting
B
Wage setting
un
Unemployment Rate, u
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #9
Productivity and the Natural Rate of
Unemployment -- the Medium Run
The Empirical Evidence
• An observation from the model:
The natural rate of unemployment should not
depend on the level of productivity or the rate
of productivity growth.
• Does this fit the facts?
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #10
Productivity and the Natural Rate of
Unemployment -- the Medium Run
The Empirical Evidence
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #11
Productivity and the Natural Rate of
Unemployment -- the Medium Run
The Empirical Evidence
• Observations from the data (omitting the depression):
Periods of high productivity growth, 1940s &
1960s, associated with lower unemployment
Periods of low productivity growth, 1970s &
1980s, associated with higher unemployment
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #12
Productivity and the Natural Rate of
Unemployment -- the Medium Run
Explaining the Empirical Findings
A Scenario
Assume: Price expectations are correct (Pe=P)
Productivity expectations (Ae) are
incorrect
W
A
Then:
Price setting
P 1
Wage setting
And:
W
AeP eF (u, z )
P
Ae>A when productivity slows down
Question: What will happen to unemployment?
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #13
Productivity and the Natural Rate of
Unemployment -- the Medium Run
• If Ae increases more
than A, the change in
wage setting is greater
than price setting
Real Wage, W/P
• Equilibrium B to B´
B´
Price
setting
B
• The natural rate increases
from un to u´n
Wage setting
un
u´n
Unemployment Rate, u
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #14
Productivity and the Natural Rate of
Unemployment -- the Medium Run
What do you think...
Does technological progress cause an
increase in the unemployment rate in the
short-run or medium run?
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #15
Technological Progress & Distribution
Effects
The Churn:
The process of new products replacing
old ones and new skills making old
ones less valuable
20th Century
Churn:
• The number of farmers fell from 11
million to less than 1 million
• 3 million buss, truck, and taxi
drivers today--zero in 1900
• Today, more than 1 million
computer programmers--nearly
zero in 1960
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #16
Technological Progress & Distribution
Effects
The Churn Continues: Fastest Growing Occupations
Home health aides
Systems analysts and
computer scientists
Medical assistants
Human service workers
Radiologic technologists &
technicians
Medical secretaries
Psychologists
Travel agents
Correction officers
1990
(thousands)
2005
(thousands)
Change
(%)
287
550
+92%
463
165
145
829
287
249
+79%
+74%
+71%
149
232
125
132
230
252
390
204
214
342
+70%
+68%
+64%
+62%
+61%
Source: Statistical Abstract of the United States, 1993, table 645
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #17
Technological Progress & Distribution
Effects
The Churn Continues: Fastest Declining Occupations
Electrical/electronic
precision assemblers
Electrical/electronic assemblers
Child-care workers, private
household
Textile draw-out and winding
machine operators
Telephone/cable/TV line
installers and repairers
Machine tool cutting operators
and tenders
Cleaners and servants,
private households
Switchboard operators
Farmers
Sewing machine operators,
garment
1990
(thousands)
2005
(thousands)
Change
(%)
171
232
90
128
-48%
-45%
314
190
-40%
199
138
-31%
133
92
-30%
145
104
-29%
411
246
1074
310
189
822
-25%
-25%
-21%
585
368
-20%
Source: Statistical Abstract of the United States, 1993, table 645
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #18
Technological Progress & Distribution
Effects
The Increase in Wage Inequality
Real Wage Changes for Full-Time Workers 1963 -1995 (%)
1963-1979
1979-1995
All Workers
17.7
-11.2
By education (years of schooling)
0-11 (less than high school)
12 (high school)
13-15 (less than 4 years of college)
16+ (4 years of college or more)
18+ (graduate school)
17.2
18.8
17.7
18.9
25.8
-20.2
-13.4
-12.4
3.5
14.0
By sex
Men
Women
18.3
16.8
-17.4
-1.5
Source: Lawrence Katz and David Autor, “Changes in the Wages Structure and Earnings Inequality”
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #19
Technological Progress & Distribution
Effects
The Increase in Wage Inequality
Observations:
Real wages for all workers have declined since 1979 while
labor productivity has grown 1% per year since 1979.
Explanations:
Wage data does not reflect fringe benefits such as health care
and pensions.
The CPI has risen more rapidly than the GDP deflator (0.6%/yr)
and, therefore, the real wage in terms of consumption has not
grown as rapidly as the real wage in terms of output
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #20
Technological Progress & Distribution
Effects
The Causes of Wage Inequality
The demand for skilled workers has risen relative to the
demand for unskilled workers.
Explaining the relative shift in demand:
• International trade
• Skill-based technological progress
Blanchard: Macroeconomics
Chapter 13: Technological Progress, Wages, and Unemployment
Slide #21