Tech-Change

RAPID TECHNOLOGICAL CHANGE HITS JOBS – BUT ONLY TEMPORARILY

Faster technological change substantially increases unemployment but the unemployment only lasts for three years and then begins to disappear. That is the central finding of research by Horst Feldmann, presented at the Royal Economic Society’s 2013 annual conference.

His study, one of the first to analyse the effects of technological change on the whole labour market, analyses data on 21 industrial countries from 1985 to 2009, a period of rapid technological change for many industries. Previous empirical research has been confined to innovative firms or industries.

The research finds that the rapid technological change substantially increased unemployment -- but only temporarily. These findings support the work of the famous economist Joseph Schumpeter (1883-1950), who argued that waves of innovation trigger a process of ‘creative destruction’ in the economy, forcing people and firms to adapt – a process that entails what he called ‘technological unemployment’.

The research also provides empirical backing for the theoretical work of contemporary economists such as Philippe Aghion (Harvard University) and Nobel laureate Christopher Pissarides (London School of Economics), who have also studied the effects of innovation on economic development.

A major example of technological change is in information and communication technologies. These technologies have radically transformed many industries, both in manufacturing and the service sector, leading to a destruction of obsolete jobs. But crucially, they have also led to the creation of new jobs.

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Faster technological change substantially increases unemployment. The adverse effect on unemployment persists for three years and disappears later on. Thus it is transitory, not permanent.

This study uses data on 21 industrial countries from the period 1985 to 2009. In several key areas, this period has been characterised by rapid technological change, a notable example being information and communication technologies. These technologies have radically transformed many industries, both in manufacturing and the service sector, leading to the destruction of obsolete jobs as well as to the creation of new ones.

Feldmann finds that the rapid technological change since the mid-1980s has substantially increased unemployment, albeit only temporarily. This study is one of the first to analyse the effect on aggregate labour market performance. By contrast, almost all previous empirical papers have confined themselves to innovative firms or industries.

Feldmann’s findings corroborate the work of the famous economist Joseph Schumpeter (1883-1950), who argued that waves of innovation trigger a process of ‘creative destruction’ in the economy – a process that entails what he called ‘technological unemployment’. It also corroborates the theoretical work of contemporary economists such as Philippe Aghion (Harvard University) and Nobel laureate Christopher Pissarides (London School of Economics), who have also studied the effects of innovation on economic development.

ENDS


Contact:

Horst Feldmann: 01225 891224 (h.feldmann@bath.ac.uk)

RES media consultant Romesh Vaitilingam:
+44 (0) 7768 661095
romesh@vaitilingam.com
@econromesh

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