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Technological Change, the Labor Market and the Stock Market

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  • Rodolfo E. Manuelli

Abstract

This paper presents a model in which a partially anticipated technological shock results, in the short-run, in lower investment and higher unemployment. Because of the expectation of future lower profits, the market value of existing firms --and the wages they pay-- decrease before the technology becomes available. When the new technology arrives, the market value of new firms rises, investment and average wages increase, but endogenous gradual adoption results in temporary wage dispersion among identical workers. The model shows that the factors that affect the rate of adoption of a new technology also influence the cross sectional dispersion of labor earnings among identical workers, and firms' market values. The predictions of the model seem to be broadly consistent with the U.S. experience of the last thirty years.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8022.

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Date of creation: Nov 2000
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Handle: RePEc:nbr:nberwo:8022

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  8. Jeremy Greenwood & Boyan Jovanovic, 1999. "The IT Revolution and the Stock Market," NBER Working Papers 6931, National Bureau of Economic Research, Inc.
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  10. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bharat Trehan, 2001. "Unemployment and productivity," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct12.
  2. Gangopadhyay, Kausik & Nishimura, Atsushi & Pal, Rupayan, 2012. "Co-movement of skill premium and stock prices," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-024, Indira Gandhi Institute of Development Research, Mumbai, India.
  3. Christophe Boucher, 2003. "“Winners take all competition”, creative destruction and stock market bubble," Finance 0305010, EconWPA.
  4. Lindé, Jesper, 2005. "The Effects of Permanent Technology Shocks on Labour Productivity and Hours in the RBC Model," CEPR Discussion Papers 4827, C.E.P.R. Discussion Papers.
  5. Rodolfo E. Manuelli & Ananth Seshadri, 2013. "Frictionless technology diffusion: the case of tractors," Working Papers 2013-022, Federal Reserve Bank of St. Louis.
  6. Bharat Trehan, 2003. "Productivity shocks and the unemployment rate," Economic Review, Federal Reserve Bank of San Francisco, pages 13-27.
  7. Julio J. Rotemberg, 2003. "Stochastic Technical Progress, Smooth Trends, and Nearly Distinct Business Cycles," American Economic Review, American Economic Association, vol. 93(5), pages 1543-1559, December.
  8. Lubos Pastor & Pietro Veronesi, 2005. "Technological Revolutions and Stock Prices," NBER Working Papers 11876, National Bureau of Economic Research, Inc.
  9. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.
  10. Rodolfo E. Manuelli & Ananth Seshadri, 2014. "Frictionless Technology Diffusion: The Case of Tractors," American Economic Review, American Economic Association, vol. 104(4), pages 1368-91, April.

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