Uneven Technical Progress and Unemployment

Abstract

In a two-sector model with real wage rigidity, we examine how technical progress in one sector affects unemployment in the whole economy. We show that aggregate unemployment decreases for uneven technical change in the case of Cobb-Douglas production functions. For every type of technical progress, however, there are also elasticities of substitution in production and utility functions leading to a rise in unemployment. Moreover, we identify polar cases when unemployment strongly decreases.

Keywords: elasticities of substitution, uneven technical progress, unemployment

JEL Classification: D58, E24, J60, L13