DP5002 The Impact of TFP Growth on Steady-State Unemployment

Author(s): Christopher Pissarides, Giovanna Vallanti
Publication Date: April 2005
Keyword(s): capitalization effect, creative destruction, embodied technology, TFP growth, unemployment
JEL(s): E24, J64, O51, O52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5002

Theoretical predictions of the impact of TFP growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects by estimating the impact of TFP growth on unemployment in a panel of industrial countries. We find a large negative impact which implies that embodied technology and creative destruction play no role in the steady-state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained.