Unit 16: Technology, Employment & Living Standards Flashcards
What is the main driver of long-run growth?
Technological progress.
How does technological progress affect unemployment in the short run?
It may increase unemployment by replacing labour.
Why hasn’t tech progress led to mass unemployment?
Job creation offsets job destruction, supported by good institutions and policies.
How does technological progress affect the production function?
It rotates the function upward, increasing productivity.
What is creative destruction?
The process of job loss and job creation due to innovation.
What is the Beveridge curve?
A graph showing the inverse relationship between unemployment and job vacancies.
What causes the Beveridge curve to shift?
Changes in matching efficiency due to skills, mobility, and policy.
What is job reallocation?
The total of job creation and destruction.
What are matching frictions?
Barriers like skill mismatch, poor info, or geographic separation that delay hiring.
What are the two curves in the long-run labour market model?
Wage-setting and price-setting curves.
What shifts the price-setting curve?
Investment incentives like competition, tax, infrastructure, and capital costs.
What is the long-run price-setting curve equation?
w = λ(1 − μ*)
How does new technology affect long-run employment?
It can increase real wages and employment once adjustments are made.
Why might the wage-setting curve shift up?
Stronger bargaining, higher benefits, or better outside options.
How does technological change affect inequality in the short run?
It increases inequality due to job losses.
How does technological change affect inequality in the long run?
It reduces inequality as real wages rise.
What institutions support good long-run outcomes?
Inclusive unions, competition policy, effective job matching.
What is needed for good labour market performance?
PS curve shifts up more than WS curve and fast adjustment.
Give an example of a successful country model.
Norway: inclusive unions and policy reforms to support wage moderation.
Give an example of poor labour market performance.
Spain: non-inclusive unions and job protection laws.
