A Long-Wave Pattern for Output and Employment in Pasinetti’s Model of Structural Change

This paper introduces long waves into Pasinetti's model of structural change on the assumption that productivity growth is fundamentally driven by technological revolutions (radical process and product innovations). The argument is developed at the logical stage of the "natural" system, focussing the investigation at the sectoral level. Three general results should be mentioned: (i) the overwhelming importance of the pattern of diffusion of the technological revolution, which shapes the productivity curve of the sector; (ii) the pattern of demand which, for process innovations, results from an endogenous price and income mechanism set up by the technological revolution; (iii) the importance of price and income elasticities of demand, which can amplify or reduce the basic impetus coming from productivity. More specifically, the sectoral analysis for process innovations shows that physical output in the final sectors follows a long-wave (S-shaped) profile while, in the capital goods sectors, it shows a cyclical pattern around the long-wave path displayed by the corresponding final sector. The inter-sectoral diffusion of such innovations sets in motion a cumulative process of growth bringing the system out of the long stagnation. The employment outcome is complex. The clearest case is that of product innovations, which show a growing employment trend both at sectoral and global level. For process innovations the results are more uncertain; however, in the realistic case of pervasive radical technical change, the most likely outcome at the macroeconomic level is a stagnating or even declining long term trend for employment.