The Impact of TFP Growth on Steady-State Unemployment∗

Abstract

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. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, 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. ∗Received February 2005; revised January 2006. †We are grateful to Pietro Garibaldi, Stephen Nickell, Rachel Ngai, Barbara Petrongolo, Randall Wright and to seminar participants at Essex, LSE, the NBER Summer Institute 2003, and the conference on the Dynamic Approach to Europe’s Unemployment Problem (DAEUP) in Berlin for their comments. This paper reports results from projects which received financial support from the European Commission (project no. VC/1999/0110 and project DAEUP at the Centre for Economic Policy Research) and from the UK Economic and Social Research Centre through its grant to the Centre for Economic Performance.

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@inproceedings{Pissarides2005TheIO, title={The Impact of TFP Growth on Steady-State Unemployment∗}, author={Christopher A. Pissarides and Giovanna Vallanti and Pietro Garibaldi and Stephen Nickell and Rachel Ngai and Barbara Petrongolo}, year={2005} }