Question

Give some examples of how technological change affects labour markets.

Answer 1

Technological progress has ambiguous effects on
aggregate employment. When such progress takes
the form of a new product (such as flat screen
televisions) which replaces an old product (such as
cathode ray tube televisions), firms producing the
old product go out of business, but labour demand
may increase due to additional demand from firms
producing the new product. When such progress
takes the place of labour-replacing automation,
technological change leads firms to adopt more
capital-intensive technologies and to substitute
labour for capital. However, various compensation
mechanisms (e.g. price-productivity effects, scale-
productivity effects, additional demand in other
sectors of the economy) can counterbalance this
type of reduction in labour demand.

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