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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.

Suggested Citation

  • Rodolfo E. Manuelli, 2000. "Technological Change, the Labor Market and the Stock Market," NBER Working Papers 8022, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8022
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    References listed on IDEAS

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    Cited by:

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    2. Gangopadhyay, Kausik & Nishimura, Atsushi & Pal, Rupayan, 2016. "Can the information technology revolution explain the incidence of co-movement of skill premium and stock prices?," Economic Modelling, Elsevier, vol. 53(C), pages 107-120.
    3. Conway Bruce A & Rosenblatt-Wisch Rina & Schenk-Hoppé Klaus Reiner, 2009. "(Un)anticipated Technological Change in an Endogenous Growth Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(1), pages 1-21, March.
    4. Luboš Pástor & Pietro Veronesi, 2009. "Technological Revolutions and Stock Prices," American Economic Review, American Economic Association, vol. 99(4), pages 1451-1483, September.
    5. Carlos M. Fernández-Márquez & Matías Fuentes & Juan José Martínez & Francisco J. Vázquez, 2021. "Productivity and unemployment: an ABM approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(1), pages 133-151, January.
    6. Bharat Trehan, 2003. "Productivity shocks and the unemployment rate," Economic Review, Federal Reserve Bank of San Francisco, pages 13-27.
    7. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370, Elsevier.
    8. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, University Library of Munich, Germany.
    9. Lindé, Jesper, 2004. "The Effects of Permanent Technology Shocks on Labor Productivity and Hours in the RBC model," Working Paper Series 161, Sveriges Riksbank (Central Bank of Sweden).
    10. Rodolfo E. Manuelli & Ananth Seshadri, 2014. "Frictionless Technology Diffusion: The Case of Tractors," American Economic Review, American Economic Association, vol. 104(4), pages 1368-1391, April.
    11. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370, Elsevier.
    12. repec:pri:cepsud:113krusell is not listed on IDEAS
    13. 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.
    14. Christophe Boucher, 2003. "“Winners take all competition”, creative destruction and stock market bubble," Finance 0305010, University Library of Munich, Germany.
    15. Bharat Trehan, 2001. "Unemployment and productivity," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct12.
    16. Lindé, Jesper, 2009. "The effects of permanent technology shocks on hours: Can the RBC-model fit the VAR evidence?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 597-613, March.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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