OPPapers.com

Technological Advance

Some who correctly anticipate that technological change may produce short-run employment-adjustment problems overstate those problems. They also often fail to mention that the short-run unemployment that occurs is primarily the result of artificial imperfections--a lack of competition--in certain labor and product markets. The amount of short-run unemployment created by advancing technology, as well as the amount of howling (or lobbying), is directly related to the degree of artificiality in the particular labor markets affected. It will be argued below that the workers harmed by technological advancement are those who have been receiving wages in excess of the amount they would receive in a fully competitive labor market. In other words, they have been receiving economic rent. It will be further argued that those workers remain unemployed when displaced by technology because they seek to regain their former employment or seek employment in another industry that pays excessive wages. In other words, they are unemployed because they are rent seekers. Finally, the effects of slow and rapid technological change will be discussed. The rate of change can serve as a basis for reasoned debate of some of the legitimate social concerns facing our society as a result of technological advancement, given the institutional imperfections already existing in the labor market.

Technological Advancement, Unemployment and Rent Seeking

In everyday language, "technological advancement" means some change allowing the production of more goods and services. The familiar connotative meaning of the term centers on the use of machines--new lathes, robots, computers, and the like. However, any better, faster, or more efficient way of producing is a technological advancement; better knowledge will suffice, even without a new tool or machine.[7] When one discusses the depreciation of human capital, which can be viewed as the natural obsolescence of job skills over time, the importance of...