Dollars and Jens
Friday, September 17, 2004
The other post was a bit long-winded and meandering, so I create a new post for a brief comment on another topic: does the burst of productivity growth cause unemployment? For the most part, the correct answer to this question is also provided by the 2004 ERP:
Nonetheless, one should not conclude that rapid productivity growth causes low employment growth. Rapid productivity growth means that output must increase faster for employment to expand, but it also means that the economy is capable of growing faster. In the long run, the faster rate of potential output growth is undoubtedly a good thing for living standards.The one caveat I'd throw on is that productivity growth often involves restructuring of the economy, which does imply a short-term increase in unemployment; it's essentially frictional, but it shows up the same in the statistics.