Technological Change

Definition

Technological change refers to the ongoing process of innovation, development, and application of new technologies that transform production methods, products, and services within an economy. It is a key driver of economic growth and can have significant impacts on employment and unemployment over both the short and long run.

5 Must Know Facts For Your Next Test

1. Technological change can lead to both job creation and job displacement, as new technologies replace certain tasks and occupations while generating demand for new skills and roles.
2. Automation, driven by technological progress, can increase productivity and reduce the need for certain types of labor, contributing to structural unemployment in the short run.
3. Skill-biased technological change can increase the wage gap between skilled and unskilled workers, as the demand for highly skilled labor rises relative to the demand for unskilled labor.
4. Technological change can also lead to the creation of new industries and occupations, generating employment opportunities and offsetting the job losses in other sectors over the long run.
5. The pace and impact of technological change can vary across different countries and regions, depending on factors such as education, infrastructure, and the adaptability of the labor force.

Review Questions

• Explain how technological change can impact unemployment over the long run.
  • Technological change can have both positive and negative effects on employment over the long run. While automation and other technological advancements can lead to job displacement in the short term, they can also create new industries and occupations, generating employment opportunities and offsetting the job losses in other sectors. The net impact on unemployment depends on the pace of technological change, the ability of the labor force to adapt and acquire new skills, and the overall economic conditions and policies that facilitate the transition to new technologies and industries.
• Describe the relationship between technological change and the wage structure in an economy.
  • Technological change, particularly skill-biased technological change, can lead to changes in the wage structure by increasing the demand for skilled labor relative to unskilled labor. As new technologies are introduced, the demand for workers with the skills to operate and maintain these technologies rises, leading to higher wages for skilled workers. This can contribute to a widening of the wage gap between skilled and unskilled workers, as the returns to education and specialized skills increase. The ability of the labor force to adapt and acquire the necessary skills to keep pace with technological change is a key factor in determining the long-term impact on the wage structure.
• Analyze how the pace and impact of technological change can vary across different countries and regions, and the factors that influence these differences.
  • The pace and impact of technological change can vary significantly across different countries and regions due to a variety of factors. These include the level of education and skill development in the labor force, the quality of infrastructure and supporting institutions, the availability of capital for investment in new technologies, the adaptability and flexibility of the labor market, and the overall economic and policy environment. Countries with a more highly educated and skilled workforce, robust infrastructure, and supportive policies that facilitate the adoption and diffusion of new technologies are more likely to experience the benefits of technological change, such as increased productivity and the creation of new industries and jobs. In contrast, regions with less developed human capital and technological capabilities may face greater challenges in adapting to the disruptive effects of technological change, leading to higher levels of structural unemployment and wage inequality.

Related terms

Automation: The use of technology, such as machinery and software, to perform tasks and functions previously done by human labor, often resulting in increased productivity and efficiency.

Skill-Biased Technological Change: The phenomenon where technological advancements tend to increase the demand for skilled labor relative to unskilled labor, leading to changes in the wage structure and employment patterns.

Productivity: The measure of output per unit of input, such as labor or capital, which can be improved through technological advancements that enhance efficiency and effectiveness.