A Quantitative Study of the Replacement Problem in Frictional Economies
AbstractThe question of how technological change affects labor markets is a classical one in macroeconomics. A standard framework for addressing this question is the matching model with vintage capital and exogenous technical progress. Within this framework, it has been argued that the impact of technological change on labor market outcomes differs according to the mechanism through which the new technology enters the economy. In particular, it matters whether: (1) new capital replaces old capital by destroying the job and displacing the worker (Schumpeterian creative-destruction) or old capital can be "upgraded" to the frontier technology (Solowian upgrading); (2) firms make the technology adoption decision unilaterally (hold-up), or the investment decision is surplus-maximizing (efficient investment). Our main finding is that for quantitatively reasonable parameter values the specific details of the model for how technology is introduced and who decides on investments do not matter for the equilibrium outcomes of our main variables of interest: unemployment, wage inequality, and labor share. The intuition for this "equivalence result" is that these models will yield significantly different implications only if the matching process is very costly and time-consuming, but our calibration shows that this meeting friction is minor
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 64.
Date of creation: 2004
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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investment-specific technical change; directed technical change; skill premium;
Find related papers by JEL classification:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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LSE Research Online Documents on Economics
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