8.1 Changes in the production function, relative demand framework Flashcards
What happens when we add skilled and unskilled labour into the production function? What is it called when productivity rises for both in this case
Y = f(S,U)
- Adds additional terms in production function:
Y = f(A^sS, A^uU)
Where A^sS captures how efficient a high skilled worker is in producing output
Factor augmenting technological change - increasing productivity of both S and U
What happens when A^sS increase?
Suppose new technology increases productivity of S workers
- Increases demand for S, however depends on ealsticity of substitution between S and U
Complements:
- Making S workers more productive means firm need less to produce the same output, as a result, an increase in A^sS is good for U workers
Seems more plausible that they are substitutes, however and so if S becomes more productive, firms will use more than them
What is the traditional approach to automation and tasks?
Production function combines FoPS to produce output
- Technological change something that makes all FoPs more efficient
- This is called factor augmenting technological change
However, production requires a range of tasks and each can be assigned to human labour or machines
- Technological change thought of as an expansion in set of tasks which can be done by machines
What is displacement reinstatement effects relating to productivity?
Displacement - machines directly replace humans in certain tasks, reducing share of labour in production function
Productivity: automation increase productivity, increases demand for labour in non automated tasks
- Tasks that cannot be substituted by automation are often complemented by it
O ring production function:
Reinstatement effect: technological change also creates new tasks performed by humans, at least initially - e.g. bank tellers vs ATMs
What is routine based technological change
- Some tasks hard for humans and complex for computers and vise versa
Autor says routine tasks can be understood as a sequence of steps, written down and automated
Technological change not necessarily skilled biased but rather routine task biased
Machines directly replace workers during routine or codifiable tasks
- These workers not necessarily those with lowest skills/education
What is job polarisation?
Jobs in the middle of the skill/wage distribution often have higher proportions of ROUTINE e.g. clerical jobs, repetitive production tasks
Jobs at top of skill distribution often require problem solving, intuition, creativity and persuasion; ABSRACT TASKS
MANUAL TASKS - jobs at bottom often require situational adaptability, visual and language recognition and in person interactions
These lead to prediction of employment polarisation - return to in empirical evidence
What is the dominant view in most demand frameworks?
Labour market clears - means at least medium term, technological change does not affect unemployment
Instead, changes in relative demand causes changes in relative wages
Why might technological change cause unemployment - What is the relative demand framework?
Suppose two types of workers, S and U
- Let r be ratio of skilled to unskilled wages: (r = Ws/Wu)
- p is ratio of skilled to unskilled employment (p = Ls/Lu)
In short run relative supply is fixed (vertical supply curve) and the relative demand curve is downward sloping
The shifts are the same in any other supply demand curve
If there is a shift in p (supply), there is increased wage inequality
What is the effect of the relative demand framework on the wider economy?
We know technology displaces some workers, but also creates jobs
- Effect on relative wages - some win and some lose
Total economy: two other factors determine if technological change shrinks or expands industry
- Labour supply elasticity: how workers respond to changing wages
- Demand elasticity: how consumers respond to changing prices and incomes
How can we illustrate overall effect of technological change?
USing a production possibility frontier
- Combination of goods which an economy can produce
Same as A levle pretty simple
