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Job Insecurity, Reallocation and Technological Innovation in a Self-Fulfilling Prophecy

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Author Info
Koen Vermeylen (University of Amsterdam)
Abstract

If workers anticipate a technological innovation, some workers may decide to quit their job and retrain themselves to acquire the skills which are needed by this new technology. However, this may facilitate the innovation and make it a self-fulfilling prophecy. This self-fulfilling mechanism is reinforced if the anticipated innovation causes job insecurity for workers who do not retrain themselves and keep their current job, but realize that the innovation may make their job obsolete. If these workers engage in precautionary saving and cut their consumption expenditures, aggregate output contracts. This gives the other workers an extra incentive to quit their job and acquire new skills, and therefore facilitates even more the innovation which consumers were worried about. This paper formalizes this idea. It also provides an illustration of how a first-order Taylor-approximation of the Euler equation yields an effect of precautionary saving.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 1175-1175
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Related research
Keywords: Unemployment risk precautionary saving reallocation technological innovation multiple equilibria

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

References listed on IDEAS
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  3. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
    Other versions:
  4. Jason Bram & Sydney Ludvigson, 1998. "Does consumer confidence forecast household expenditure? a sentiment index horse race," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 59-78. [Downloadable!]
    Other versions:
  5. Hassler, John, 2001. " Uncertainty and the Timing of Automobile Purchases," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(2), pages 351-66, June. [Downloadable!] (restricted)
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  7. Christopher D. Carroll & Wendy E. Dunn, 1997. "Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets," NBER Working Papers 6081, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Adrian W. Throop, 1992. "Consumer sentiment: its causes and effects," Economic Review, Federal Reserve Bank of San Francisco, pages 35-59. [Downloadable!]
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  14. Bruce C. Fallick, 1995. "A review of the recent empirical literature on displaced workers," Finance and Economics Discussion Series 95-14, Board of Governors of the Federal Reserve System (U.S.).
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