θβ
(a)
Ψ( k )
Φ( k )
k о k1
Figure 6: Effects of Technical Progress on the Labor Market in an Imitation Econ-
omy.
vation countries, they are also known in imitation countries. This reflects the idea
of the importance of the stage of development and of the catching-up processes of
economies with low capital intensities. In such an economy, the stage of development
is that of an imitator and the economy has not reached the innovation stage yet.
Due to increasing technological progress, firms create new vacancies and offer them
in the labor market and, due to the import of production methods, the technologies
as well as the handling of the technologies are well-known in these economies. Thus,
unemployed workers are available possessing the human capital to fill the vacancies
and additional matching takes place. This is the capitalization effect that increases
employment and decreases unemployment.
However, the creative destruction effect is also present in economies with low capital
intensities implying that old unproductive jobs are destroyed, that workers are laid
off and that unemployment increases.
Because the creative destruction effect or the capitalization effect can dominate,
the implication for steady-state labor market tightness is ambiguous. As long as the
capitalization effect dominates, steady-state labor market tightness will increase (see
Figure 6a) inducing a reduction in steady-state unemployment, in steady-state un-
employment duration and in the fraction of steady-state long-term unemployment.
However, if the creative destruction effect dominates, the effects are the opposite
(see Figure 6b).
Thus, for an economy with a low equilibrium level of capital intensity, increasing
technological progress can have ambiguous effects for the steady-state labor mar-
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