Search, Technology Choice, and Unemployment

Angyridis, Constantine and Zhou, Haiwen (2022): Search, Technology Choice, and Unemployment.

Abstract

Technology variations among countries account for a significant part of their income differences. In this paper, a firm’s technology choice is embedded in a search theoretic framework for unemployment. A more advanced technology is assumed to have a higher set up cost, but it is more productive. The model is tractable and the following results are derived analytically. An increase in the unemployment benefit leads to an increase in the equilibrium wage rate, giving an incentive to firms to choose a more advanced technology. Thus, this result regarding unemployment insurance in models with wage posting carries through with Nash bargaining as well. As a consequence, the equilibrium unemployment rate increases. Furthermore, an increase in the bargaining power of workers increases the unemployment rate, but has an ambiguous impact on the equilibrium level of technology and the wage rate. Finally, an increase in the exogenous job separation rate or the interest rate increases the unemployment rate and decreases the wage rate but does not affect the equilibrium level of technology.

• Item Type: MPRA Paper
• Language: English
• Keywords: Job search, technology choice, unemployment
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology

References

Acemoglu, Daron, and Pascual Restrepo. 2018. The race between man and machine: Implications of technology for growth, factor shares, and employment. American Economic Review 108, 1488-1542.

Acemoglu, Daron, and Robert Shimer. 1999. Efficient unemployment insurance. Journal of Political Economy 107, 893-928.

Acemoglu, Daron, and Robert Shimer. 2000a. Wage and technology dispersion. Review of Economic Studies 67, 585-607.

Acemoglu, Daron, and Robert Shimer. 2000b. Productivity gains from unemployment insurance. European Economic Review 44, 1195-1224.

Albrecht, James. 2011. Search theory: The 2010 Nobel Memorial Prize in economic sciences. Scandinavian Journal of Economics 113, 237-259.

Autor, David, Frank Levy, and Richard Murnane. 2003. The skill content of recent technological change: An empirical exploration. Quarterly Journal of Economics 118(4), 1279-1333.

Autor, David, and Anna Salomons. 2018. Is automation labor-displacing? Productivity growth, employment, and the labor share. Brookings Papers on Economic Activity, 1-72.

Comin, Diego, and Bart Hobijn. 2010. An exploration of technology diffusion. American Economic Review 100, 2031-2059.

Diamond, Peter. 1982. Aggregate demand management in search equilibrium. Journal of Political Economy 90, 881-894.

Elsby, Michael, and Ryan, Michaels. 2013. Marginal jobs, heterogenous firms, and unemployment flows. American Economic Journal: Macroeconomics 5, 1-48.

Gong, Binglin, and Haiwen Zhou. 2014. Financial development, the choice of technology, and comparative advantage. Journal of International Trade and Economic Development 23, 1238-1261.

Goos, Maarten, Alan Manning, and Anna Salomons. 2014. Explaining job polarization: Routine-biased technological change and offshoring. American Economic Review 104(8), 2509-2526.

Graetz, Georg and Michaels, Guy. 2018. Robots at work. Review of Economics and Statistics 100(5), 753-768.

Hagedorn, Marcus, Fatih Karahan, Iourii Manovskii, and Kurt Mitman, 2013. Unemployment benefits and unemployment in the Great Recession: The Role of macro effects, NBER Working Paper, No. 19499.

Ma, Hongkun, X. Henry Wang, and Chenhang Zeng. 2015. Cournot and Bertrand competition in a differentiated duopoly with endogenous technology adoption. Annals of Economics and Finance 16, 231-253.

Menezes-Filho, Naercio, and John Van Reenen. 2003. Unions and innovation: A survey of the theory and empirical evidence. In John T. Addison and Claus Schnabel (Eds), International Handbook of Trade Unions, Cheltenham Edward Elgar Publishing.

Miguel, Morin. 2015. The labor market consequences of electricity adoption: Concrete evidence from the Great Depression. Cambridge-INET Institute, Working Paper Series No: 2015/11.

Mortensen, Dale, and Christopher Pissarides. 1999. New developments in models of search in the labor market. Handbook of Labor Economics, Volume 3, New York, NY: Northern Holland.

Pantuosco, Lou, Darrell Parker, and Gary Stone. 2001. The effect of unions on labor markets and economic growth: An analysis of state data. Journal of Labor Research 22, 195-205.

Partridge, Mark. 2001. Exploring the Canadian-U.S. unemployment and nonemployment rate gaps: Are there lessons for both countries? Journal of Regional Science 41, 701-734.

Pissarides, Christopher. 1984. Search intensity, job advertising, and efficiency. Journal of Labor Economics 2, 128-143.

Pissarides, Christopher. 1985. Short-run equilibrium dynamics of unemployment, vacancies, and real wages. American Economic Review 75, 676-690.

Pissarides, Christopher. 2000. Equilibrium Unemployment Theory. Second edition, Cambridge, MA: MIT Press.

Prendergast, Renee. 1990. Scale of production and choice of technique in the engineering industries in developing countries. Journal of Development Studies 27, 72-88.

Ramsey, Garey, and Joel Watson. 1997. Contractual fragility job destruction and business cycles. Quarterly Journal of Economics 112, 873-911.

Turnovsky, Stephen. 1977. Macroeconomic Analysis. New York, NY: Cambridge University Press.

Young, Allyn. 1928. Increasing returns and economic progress. Economic Journal 38, 527-542.

Zhou, Haiwen. 2004. The division of labor and the extent of the market. Economic Theory 24, 195-209.

Zhou, Haiwen. 2009. Population growth and industrialization. Economic Inquiry 47, 249-265.

Zhou, Haiwen. 2011. Confucianism and the Legalism: A model of the national strategy of governance in ancient China. Frontiers of Economics in China 6, 616-637.

Zhou, Haiwen. 2013. The choice of technology and rural-urban migration in economic development. Frontiers of Economics in China 8, 337-361.

Zhou, Haiwen. 2021. Fixed costs and the division of labor. Annals of Economics and Finance 22, 63-81.