Working Paper: CEPR ID: DP15739
Authors: Richard Baldwin; Jan I. Haaland; Anthony Venables
Abstract: The impact of technological progress on jobs and wages has been subject to much empirical and some theoretical work. However, most of this literature has not addressed the general equilibrium interplay between the productive factors that are affected, the sectors in which these factors are used, and the consequent changes in the structure of employment and factor returns. This paper draws on tools from general equilibrium trade theory to provide an integrated approach to these issues. The analysis centres around three key elasticities linking technological change to jobs – the jobs-displacing substitution effect, the job-creating demand effect, and the general-equilibrium effects, through which factors are reallocated between sectors. The results highlight the role of relative factor intensities and the importance of openness in determining the effects of technology on jobs, wages, and structural change. The implications of interaction between non-tradable and tradable sectors are analysed.
Keywords: Technical Change; Wages; Employment; Factor Intensity
JEL Codes: F11; F16; J30; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological progress (O49) | jobs-displacing substitution effect (J63) |
| Elasticity of substitution (D11) | jobs-displacing substitution effect (J63) |
| Technological progress (O49) | job-creating demand effect (J23) |
| Elasticity of demand > Elasticity of substitution (D11) | job-creating demand effect (J23) |
| Factor reallocations (G32) | wages and employment levels (J31) |
| Rybczynski elasticity (F16) | wages and employment levels (J31) |
| Nature of technology shock (O33) | direction and magnitude of wage changes (J31) |