Abstract
This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labour scarcity induces labour productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a microfoundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage.
Highlights
In a competitive environment, a process innovation allows firms to increase profits through a reduction of costs
The present paper addresses this question in a static version of the dynamic competitive economy with endogenous task-based technical progress devised in Irmen (2017) and Irmen and Tabakovic (2017)
In the competitive one-sector economy studied in Hellwig and Irmen (2001a) firms produce a final good with the production function yl(n) of (6.1)
Summary
A process innovation allows firms to increase profits through a reduction of costs. The analysis of the link to a static version of the competitive growth model proposed by Hellwig and Irmen (2001a) reveals that this one-sector model has no weak absolute bias since the equilibrium technology maximizes the real wage. The analysis confirms this intuition for a scenario where either individuals supply more hours in response to a higher real wage or where the supply of labor increases in the rental rate of capital This tendency does not invalidate the key predictions derived in the basic version of the model with inelastic factor supplies. This turns the economy either into one with a minimum wage or into a small open economy Both setups yield similar results concerning the role of changing factor endowments for the equilibrium technology, the remaining endogenous factor price, and employment levels.
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