Technology & Labour Market Flashcards
(11 cards)
What is the main idea in the skill biased technology theory (SBT)?
New technologies compliment high skill labour and thus increase the demand for high skill labour, raising the relative high skill wage.
In the SBT theory, how does the increase in the relative supply of skilled labour impact the skill premium?
An increase in the relative supply of high skill labour reduces the skill premium.
In the SBT theory, assuming that the elasticity of substitution between high and low skill is greater than one, how does an improvement in the relative productivity of high-skill augmenting technology impact the skill premium?
A relative increase in high-skill augmenting technology will increase the skill premium as high skill labour becomes more productive.
In the SBT theory, assuming that the elasticity of substitution between high and low skill is less than one, how does an improvement in the relative productivity of high-skill augmenting technology impact the skill premium?
A relative increase in the high-skill augmenting technology will decrease the skill premium. High skill labour is more productive and thus effectively becomes more abundant. Therefore, because high and low skill labour are complements, firms need more low skill labour to match the level of high skill labour, increasing the demand for low skill labour.
What are the problems with SBT theory?
- There are historical cases where new technologies do not complement skill but replace it.
- It does not explain the stylized fact that skill based technology change accelerated soon after an unprecedented increase in the supply of skills during the 1970’s.
What is the key assumption and intuition underlying the Skill-Directed Technology Change (SDT) theory?
The key assumption is that new technologies are not complementary to skills by nature, but by design. The intuition - when there are more skilled workers, the market for skill complementary technology is larger. Thus, inventors are able to obtain higher profits by inventing skill complementary technologies.
How does an increase in the relative amount of high skilled labour (H/L) impact the skill premium in the SDT theory?
In the SDT theory the impact of H/L on the skill premium has two competing effects: the substitution effect and a directed technology effect. An increase in H/L decreases the skill premium if the elasticity of high and low skill labour is less than one, but we see competing effects when the elasticity is greater than one.
What is the underlying intuition of the automation theory (Acemoglu & Restrapo)?
Aims to capture the use of machines to substitute for human labour in a widening range of tasks.
How is automation modeled in the automation theory?
An increase in I (meaning more tasks on the continuum of tasks from N-1 to N are automated).
What are the 4 main results from the automation model?
- Increasing automation increases output and output per worker.
- Automation always makes production less labour intensive and reduces the labour share of output.
- There are competing impacts on wages from increasing automation - a productivity effect (positive) and a displacement effect (negative).
- Automation increases the demand for capital and thus the equilibrium rental rate.
Outside of the main results, what further implications does the automation theory have?
- The automation technologies that are more likely to reduce the demand for labour are not those highly productive ones, but those that are “so-so”.
- The creation of new tasks - the expansion of the range of tasks (N) in which labour has a comparative advantage - is important for increasing productivity, the demand for labour and the labour share of output. Automation also may create new tasks.
- Automation at the intensive margin will increase the demand for labour.
