Do technological advances result in higher unemployment?
Issues and Background
An increase in the pace of technological change can have two profound side effects in the labor market. It can increase the rate
and the average duration of unemployment. Because firms may not consider it cost-effective to retrain some types of workers to
keep up with change, notably the less-educated and older employees, these workers may be jobless for long periods of time, with
some of them perhaps never working again. If technological change causes workers to become unemployed more often and for
longer periods of time, not only will the level of unemployment increase, but the "natural rate of unemployment," the hypothesized
minimum sustainable rate of unemployment, will increase as well.
~William J. Baumol and Edward N. Wolff, "Side
Effects of Progress," Public Policy Brief, July 1998
Technology both eliminates jobs and creates jobs. Generally it destroys lower wage, lower
productivity jobs, while it creates jobs that are more productive, high-skill and better paid.
Historically, the income-generating effects of new technologies have proved more powerful than
the labour-displacing effects: technological progress has been accompanied not only by
higher output and productivity, but also by higher overall employment.
Jobs Study, 1994
Technological advances allow society to produce more output from the existing mix of resources.
These advances may take the form of less costly methods of producing existing output or may result
in the production of new (or substantially improved) commodities (such as DVD players, HDTV,
anti-lock braking systems, and similar innovations). Society clearly gains from the production
of either more output or more highly valued output. But, how do these technological advances
Virtually all types of technological change result in increases in the demand for labor
in some labor markets and decreases in the demand for labor in other labor markets. The
introduction of assembly line production methods and the production of interchangeable parts
resulted in a substantial increase in labor productivity. This technological innovation also
resulted in an increase in the demand for unskilled workers and a decrease in the demand for
skilled artisans. The introduction of automated manufacturing processes, on the other hand,
has resulted in a decrease in the demand for unskilled workers and an increase in the demand
for quality control technicians and computer programmers. In general, technological change
will alter the composition of the demand for labor, raising the demand for some types of
labor and reducing the demand for other types of labor. Those who lose jobs as a result of
technological change that reduces the demand for that category of labor are said to be
Even though technological change may adversely effect the demand for labor in some labor markets,
the overall effect of technological change on total employment may be positive. Technological
change tends to increase the rate of economic growth. Higher rates of economic growth are
generally associated with lower unemployment rates. This relationship between changes in the
rate of economic growth and the change in the unemployment rate is summarized by "Okun's law," a
relationship that indicates that a 1% increase in the rate of economic growth lowers
the unemployment rate by 0.3%. While there is some doubt about the exact magnitude of this
effect, there is substantial empirical evidence that unemployment rates tend to fall when
the rate of economic growth is higher.
While the effect of technological change on the unemployment rate is ambiguous, this may be
little consolation to those workers whose job skills have been rendered obsolete as a result
of technological change. One of the issues that every industrialized society has to deal with is
the extent to which the government should be involved in the retraining of structurally
A good deal of recent debate has involved the related question of whether the widespread use of
computers in the workplace has enhanced productivity. Preliminary studies suggested that
the introduction of computers had no significant effect on productivity. More recent studies
have generated mixed results. It is fairly clear, though, that the widespread introduction of
computers has, to date, had a less dramatic effect on productivity and economic growth than resulted from
the widespread introduction of such earlier innovations as the steam engine, electricity, and the
internal combustion engine.
Primary Resources and Data
- Bureau of Labor Statistics
The Bureau of Labor Statistics is the best source for data on current
labor market conditions. site contains a wide variety of statistics
and data, online working papers dealing with the labor market, and information
about the programs and publications of this agency.
- Bureau of Labor Statistics, "Occupational Outlook Handbook"
The Occupational Outlook Handbook is a superb source for information
about current and expected future labor market conditions for a wide
variety of occupations. For each occupational title, this handbook provides
information about the type of work involved, training and educational
requirements, and salary information. Projections of future labor market
conditions (based upon survey responses) are also included for each
- Bureau of Labor Statistics, "The 10 occupations with the largest job growth, 2004-14"
This table provides a breakdown of the expected number of job openings
by level of education and training requirements. As this table indicates,
much of the projected job growth is in occupations that have relatively
limited education requirements.
- Monthly Labor Review
The online edition of Monthly Labor Review contains current labor
force statistics and studies of trends in labor markets. This is a good
place to search for recent studies of the effect of technological change
on the labor market.
- Bureau of Labor Statistics, "How the Government Measures Unemployment"
This online document contains a detailed description of the process
by which the government constructs unemployment statistics.
- Bureau of Labor Statistics, "The Employment Situation"
This document contains the most recent release of statistics on the
state of the U.S. labor market. A detailed breakdown of labor force,
employment, and unemployment statistics is provided by age, educational
attainment, race, gender, and industry.
- F.M. Scherer, "Raising Productivity on the Technological Frontier"
In this online article, F.M. Scherer provides a detailed discussion
of the factors that result in productivity growth. He describes some
of the major problems in measuring the benefits from quality improvements
or the introduction of new products.
- National Center for Policy Analysis, "Productivity"
This page contains links to information and short essays dealing with
labor productivity in the U.S. economy. It is noted that recent increases
in labor productivity may be the result of the introduction of computers
in the workplace.
- Workforce Investment Act of 1998
This is the text of the statute that establishes the Workforce
Investment Act, a program designed to provide job skills to
workers who are structurally unemployed. This program was created in
1998 and implemented in 2000 as a replacement for the Job Training and Partnership Act
(which in turn, was a replacement for CETA, the Comprehensive Training and Employment
Different Perspectives in the Debate
- William J. Baumol and Edward N. Wolff, "Side Effects of Progress"
William J. Baumol and Edward N. Wolff address the issue of structural
unemployment that results from a more rapid pace of technological progress
in article appearing in the July 1998 issue of Public Policy Brief.
They note that a higher rate of technological change generally results
in higher rates of structural unemployment, particularly for workers
who are approaching retirement age and workers possessing low levels
of educational attainment. Baumol and Wolff suggest that the government
should devote more resources to retraining workers. (To view this document,
the Adobe Acrobat viewer plugin is required. You may download this viewer
by clicking here.)
- OECD, "The OECD Jobs Study: Facts, Analysis, Strategies"
The OECD examines alternative strategies associated with expanding employment
in this online article and argues that technological change tends to
create more jobs than are lost. Economies, however, have to deal with
the problem of structural unemployment that results from technological
change. The tradeoff that economies face between job security and economic
growth is also discussed in this article.
- J. Bradford DeLong, "How Fast is Modern Economic Growth"
In this online article, J. Bradford De Long argues that conventional
measures of economic growth underestimate the actual benefits that have
resulted from technological advances. In particular, he notes that calculations
of economic growth do not fully take into account the availability of
new products that have resulted from technological advances.
- W. Michael Cox and Richard Alm, "Time Well Spent: The Declining
Real Cost of Living in America"
In this 1997 Dallas Fed annual report, W. Michael Cox and Richard Alm
examine how increases in labor productivity have lowered the real cost
of most commodities. In this report, they measure the real cost in terms
of the number of hours of labor required for a typical manufacturing
worker to pay for each of the commodities discussed. This report emphasizes
the importance of technological innovation in raising the standard of
living of a typical worker. (Note: This article follows a brief letter from
the President of the Dallas Fed.)
- Federal Reserve Bank of Minneapolis, "Labor Productivity is
the Key to Economic Growth"
The relationship between labor productivity and economic growth is analyzed
in this 1996 Minneapolis Fed annual report. The report argues that the
major source of economic growth is the increase in productivity that
results from technological advances.
- Stephen D. Oliner and Daniel E. Sichel , "The Resurgence of Growth in the Late 1990s: Is
Information Technology the Story?"
In this March 2000 Federal Reserve Board working paper, Stephen D. Oliner and Daniel E. Sichel
examine the determinants of productivity growth in recent years. They find that the use of information
technology appears to be an important reason behind the growth in productivity in the latter part
of the 1990s. Technological advances in computer technology seem to have accelerated this
growth. (While portions of this paper are relatively technical, introductory economic students
should still be able to understand the essential arguments.)
- Office of the Chief Economist, U.S. Department of Labor, "Generating
Productivity Growth: A Review of the Role of Workplace Practices and
In this September 10, 1996 report, the Department of Labor summarizes
the results of recent studies concerning the effect of computers and
workplace practices on productivity. The report notes that the evidence
suggests that there are substantial productivity gains resulting from
additional worker educational attainment, offsite training programs,
and computer training. Studies of individual firms find a substantial
return to computer use in the workplace. The report also indicates
that a recent study by Alan Krueger has found that workers who use computers
in their jobs receive 15% higher pay than similar workers who do not
- Sheila McConnell, "The Role of Computers in Reshaping the Labor
In this August 1996 Monthly Labor Review article, Sheila McConnell
examines the impact of computing technology in the workplace. She notes
that, unlike most past technological innovations, the introduction of
computers has affected virtually every occupation. (To view this document,
the Adobe Acrobat viewer plugin is required. You may download this viewer
by clicking here.)
- Laura Freeman, "Job Creation and the Emerging Home Computer
Laura Freeman discusses the job creation that has resulted from the
growth of the home computer market in the August 1996 issue of Monthly
Labor Review. She observes that growth in consumer demand for personal
computers has had a substantial impact on employment in wholesale and
retail companies, software firms, and information retrieval firms. (To
view this document, the Adobe Acrobat viewer plugin is required. You
may download this viewer by clicking here.)
- Allen J. Scott, "Multimedia and Digital Visual Effects: an Emerging
Local Labor Market"
In this March 1998 issue of Monthly Labor Review, Allen J. Scott
examines the local labor market in multimedia and digital visual effects
that has recently developed in southern California. This is an example
of a labor market that was created as a result of technological advances.
(To view this document, the Adobe Acrobat viewer plugin is required.
You may download this viewer by clicking here.)
- William C. Goodman, "The Software and Engineering Industries:
Threatened by Technological Change?"
In this article appearing in the August 1996 issue of Monthly Labor
Review, William C. Goodman notes that declines in defense spending
and more efficient automated software design processes have resulted
in declines in the rate of growth in employment in the engineering and
software industries. (To view this document, the Adobe Acrobat viewer
plugin is required. You may download this viewer by clicking here.)
- Alan Greenspan, "Structural Change in the New Economy"
Federal Reserve Board Chair Alan Greenspan discusses the impact of technological change in this July 11, 2000 speech. He
argues that rapid technological change has resulted in high rates of economic growth, low inflation, and low levels of unemployment.
- 2003 Annual Report — Federal Reserve Bank of Dallas, "Riding a Surge of Technology"
In this Annual report, the Federal reserve Bank of Dallas suggests that rapid productivity growth
has been caused by the successful integration of computer networks into businesses. This has resulted
in declining unemployment and relatively rapid economic growth.
- Federal Reserve Governor Susan Schmidt Bies, "Remarks Before the Tech Council of Maryland's Financial Executive Forum, Bethesda, Maryland "
Susan Schmidt Bies, in this January 18, 2006 speech, argues that productivity growth has been fueld by technological change
in information technology and biotechnology. This has spurred economic growth and reduced unemployment.