What’s Causing What Now?
Over at Marginal Revolution, Alex Tabarrok takes on the common assertion that productivity gains are to blame for unemployment. It seems to me like those persuaded by this [that productivity increases cause unemployment] view are proposing something like a Phillips Curve with respect to productivity and employment. It, like the Phillips Curve, has little to nothing to do with reality depending upon the specifications and time-period involved. Tabarrok proposes a few possibly explanations, but I find this one most persuasive:
The more typical case, however, is that productivity growth leads to higher real wages and lower unemployment. Indeed, in the now fairly standard real business cycle models a boom is caused by a positive productivity shock and a recession by a negative shock. Empirical evidence supports the idea that positive productivity shocks lead to lower unemployment.
He also covers the possibility that there are different short-run and long-run effects of productivity shocks. Read the whole thing, as “they” say.
