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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8022.
Length: Date of creation: Nov 2000 Date of revision: Handle: RePEc:nbr:nberwo:8022
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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