Analyzing the effect of increasing productivity growth on the balanced accumu-
lation function, a negative relationship can also be derived:
<9Φ1(⅛) _ λ0ka
—< U.
∂λ cυ0n∖2
The increase in the growth rate of technical progress affects the balanced capital
accumulation negatively and for given unemployment the labor market becomes
tighter, i.e. labor market tightness decreases. This is reflected by the downward
shift of the balanced accumulation function.
In order to examine the total effect of an increase of the rate of technical progress
on steady-state labor market tightness and on steady-state unemployment, the
above implications - both derived separately - have to be analyzed together for
economies characterized by high or low capital intensities. Industrialized countries
are economies with high levels of capital intensities, because they are innovation
rather than imitation economies. This means that firms of those economies invent
new technologies to realize cost advantages; and because they work with high capital
intensities, they offer vacancies endowed with the latest technology. These firms re-
quire workers with human capital able to invent new production technologies and to
handle the latest technologies. Therefore, they are innovators rather than imitators.
On the other hand, economies with low capital intensities are imitation rather than
innovation economies.
Depending on whether an economy has a high or low level of capital intensity, two
effects influencing steady-state unemployment can be distinguished:20 If the increase
in the rate of technological progress implies that more existing jobs are destroyed
than new ones are created, a reduction in aggregate employment appears and this
is the creative destruction effect. However, a positive employment effect can re-
sults, which is the capitalization effect, if the rise in the growth rate of technological
progress induces that more vacancies are produced than existing jobs are destroyed.
Innovation Economy
If an economy is an innovation country, the introduction of new technologies im-
plies that old jobs become unproductive really fast causing the destruction of these
unproductive jobs. Since quantitatively more old jobs are destroyed than new ones
are created, the net dismissal of workers is implied and at a high equilibrium level of
20SeealsoMoRTEXSEX, Pissarides (1998), Postel-Vixay (1998), Aghiox, Howitt (1994)
and Pissarides (1990).
23