Technological progress, job creation, and job destruction

Abstract

New technology embodied in capital equipment can be adopted either through destruction of existing jobs and the creation of new ones or by renovation, updating the job's equipment. Under the assumption that the destruction of jobs generates worker layoffs, we show that higher productivity growth induces lower unemployment when renovation costs are low, but that the response of employment to growth switches from positive to negative as the cost of updating existing technology rises above a unique critical level. The effects of idiosyncratic productivity differences and cross sector mobility on the aggregate relationship between growth and unemployment are also studied.Journal of Economic LiteratureClassification Numbers: D92, E24, J41, J63, J64. © 1998 Academic Press.