File 24: Conclusions on employment

Question 1

What is job destruction compatible with? (2)

Answer 1

with rising employment:

1. Product innovation tends to create jobs.
2. A number of mechanisms offset the job-loss associated with an innovation:
   i) the construction of the labour-saving equipment; ii) price falls; iii) wage falls; iv) ‘local’ spending of the extra profits made by the innovating entrepreneur.

Question 2

What does job loss caused by rising employment depend on?

Answer 2

on institutions.

Question 3

What determines if a model will follow a downward spiral originating from a wave of innovations or not? what does this suggest?

Answer 3

1. if it follows adaptive expectations, it is possible
2. if investors bring rational expectations to their decisions, makes spiral less likely
   => evidence suggests that countries can both experience substantial waves of innovation and robust employment.

Question 4

How has Recent evidence suggests that the ICT revolution has modified the demand for labour?

Answer 4

the kind of labour demanded has shifted in the direction of the more skilled. This is called skill-biased technological change (SBTC). It is argued by Autor and others that SBTC is the main explanation for rising earnings inequality in the US and other countries, including Canada.

Question 5

What are evidences that support that SBTC explains the rise in earning inequality?

Answer 5

i) a rising premium to education; ii) the association between computer use and earnings. Neither kind of evidence is unproblematic, for reasons we discussed. It is also clear that a number of other factors have contributed to rising inequality (in the US, the freezing of the minimum wage in the 1980s, the different effects of immigration in the US and Canada, trade with the third world).

Question 6

What are aspects of rising inequality? (3)

Answer 6

i) the most distinctive aspect of rising inequality is the disproportionate share of earnings growth at the top of the earnings distribution;
ii) winner-take-all mechanisms do seem to contribute to this;
iii) winner-take-all mechanisms assume the effect of technology on productivity.
(evidence in US of market difficulties for less well educated males)