Labour market dynamics in the era of technological advancements: The system-wide impacts of labour augmenting technological change

Abstract

The employment impact of future technological change is much debated. Some commentators predict devastating job losses, while others are more sanguine, claiming that technological change raises living standards without reducing total employment. Our analysis a use a combination of partial equilibrium and dynamic computable general equilibrium (CGE) analysis with neo-Keynesian characteristics. These models are employed to assess the implications of skill-biased labour-augmenting technological change. They are calibrated on recent German Social Accounting Matrix data and parameterised using the best available empirical results from developed economies. The numerical CGE multi-sectoral model simulates the system-wide impacts of pervasive technical change affecting all sectors of the economy. The model allows investigation of alternative scenarios based around a common economic structure and set of parameter values. The results suggest that labour-augmenting technological change typically stimulates GDP growth and long-run total employment. However, there are negative short- and medium-run employment and real wage implications which might require government policy intervention. The simulations indicate that for open developed economies, improving the efficiency of skilled workers, as opposed to unskilled workers, is the most beneficial. This improvement has positive long-run impacts that are spread across both skill classifications. On the other hand, increasing the efficiency of the unskilled produces negative impacts on skilled employment and real wages. Additionally, the openness of the economy to migration and trade are important in determining the scale of these system-wide effects.