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Labor Economics



In the current century, production efficiency and economic profitability have been the core influencing factors for companies in their efforts to satiate the consumer’s changing tastes and preference as well as sustain their competitive advantage over their industry rivals. The firms have invested huge amounts in the capital intensive methods to ease modality of operations and enhance close monitoring of the firm’s cost-effectiveness in producing quality products and services. The technological surge has caused disquiet among the citizens in the employment sector as well as those in search of employment. Some have expressed disappointments that the rise in technology is to blame for the diminishing chances in the employment field while others attribute rapid technological growth as the gateway to increased variety of products and services, reduced cost of output and bridging gaps to the market’s information asymmetry. John MaynardKeynes, an economic theorists argued about the positive and negative effects and claimed that rise in technology could subject an economy to technological unemployment crisis as the an imbalance is created between capital intensive and labor force input necessary for achieving targeted productivity.

However, Keynes was quick to note that the situation as a temporal change subject to economic adjustment and the shift in technology would create more opportunities in the ensuing economic period. Unfortunately, continued fear of redundancy among employees and unemployed citizens due to technologically induced structural unemployment has continued to elicit varied opinion from different economic, educational and social perspectives.

Article Summary

In his article published in the Telegraph newspaper, Alan Tovey expressed his worries that more than ten million people were at the risk of losing their jobs due to the rapid rise in technological growth across the globe. He pointed out that the people with low earnings are the most susceptible to lose their jobs as the technological wave automates their functions and renders their expertise redundant (Tovey: par. 2). Ultimately, loss of jobs for low earning workers would lead to structural unemployment that may eventually create a widening gap between the rich and the poor in the United Kingdom. The facts in the article seem to hold water in a literal manner as the author fails to explain the positive effects that technological growth could cause in the economy such as easing production cost and creating more job opportunities.

In another article, Erik and Andrew invite the attention of the reader by outlining the reason as to why employees seem to be giving up the war against the machines. He argues that human population in employment and the unemployed population were likely to be edged out by advanced technology. Highlighting the tenets by David Ricardo that technological unemployment is likely to cripple low skilled workers, he retains the notion that technological progress would lead relax at Pareto optimal point where one party must be adversely affected by the success of the other (Mcafee, and BrynJolfsson, par.3). The authors argue that technological change lower wages demoralize employees, thus inducing them to voluntarily leave their jobs rather than receive reduced remunerations. Nevertheless, the authors remain oblivious of the historical facts bore by the United States where technology change has continued to record massive employment opportunities at a marginally increasing rate for over 200 years. Hence, the arguments beg the question; is technology a disguised incentive to the economy or is it a disguised portrays by the rationality of fearful human beings?

In another perspective, James Bessen contradicts with the authors and claims that growth in technology is not the basis for job redundancy and economic inequality. Rather, technology will create more job opportunities where redundant workers will be displaced upon being acquainted with necessary skills (Bessen, par.20) His arguments water down the emotionally delusive propositions that defy the economic impact of technology in labor employment and the ultimate impact on the macroeconomic policies stability in the long-term.

Thesis statement

Based on the above opinions about the effect of technological change on the economy, we create a dilemma question; where should we draw the line between technological change and unemployment? And to what extent should existing and eligible employees view change in technology as an economic incentive rather than a disincentive? This paper will utilize the economic analysis on labor to respond to the questions and proof that technological change has temporal negatives in the short-run but incurs long-term benefits to the overall economic growth and development of a country.

Economic analysis on the impact of technology in employment rate

The level of output production is determined by the integrated interrelations of two factor inputs i.e. labor and capital. In the globalization process, firms have injected enormous resources into the capital input at the expense of the labor inputs that is exogenously affected by the rise in cost of living. Increased cost of living due to inflationary pressure has decreased the consumer’s real income, hence the need to demand higher wages. Similarly, firms have opted for easier and cost-effective methods of production in an effort to maintain a positive revenue trend and continuously improve the quality of products.

Economically, productivity function is derived as: Y= (K, AN) where Y=output; K= capital, N= labor and A represents the rate of technological progressed that induce overall output (number of units contributed by each employee).When a company increases the productivity of every employee through technological advancement, the level of employment will decrease in the short-run(Pierre, Carcillo, and Zylberberg, 629). This is because, the firm will have to employ few workers to attain the target level of output i.e. N= Y/ A

Where Y (output is in the short-run period). During this short-run period, when a firm boosts its production with new technology, the level of productivity increases and consequently reduces the cost of production.



Figure a, indicates that an increase in technological development lowers the cost of producing goods thus prompt rational firms to reduce the cost of final output. This is due to the enhanced efficacy by technological boost that eliminates idle machine and lead time costs. As a result, the aggregate supply of goods shift downwards to the right as the consumers react to the fear of work tenure uncertainty by raising their level of demand. Hence, it would be logical to argue that an increase in the level of technology is a beneficial factor for the consumers whose purchasing power rises in turn.

Despite the loss of employment by low-skilled workers due to growth in technology, workers obtain the benefit of re-adjusted wages as an incentive to reduced cost of production. Based on figure b, Reduced cost of producing one unit of output and the subsequent reduction in selling price adjusts the worker’s real wage downwards. This is an after-effect of increase in a firm’s productivity and cost efficiency. Consequently, real wages and the market price level shifts at a similar rate because adjustments in nominal wage and the price level are subject to the level of productivity and the rate of natural unemployment (Pierre, Carcillo and Zylberberg, 629). Natural unemployment occurs when structural, and frictional unemployment interrelates. Therefore, the economic presentation deduces that technological investment has an insignificant impact on the rate of unemployment in any given economy. The deduction supplements the employment statistics in the United States indicating a marginally increasing job opportunities following a massive redundancy of employees in various companies.

In that perspective, technology investment causes frictional unemployment for low-skilled workers in the short-run and the loop can be sealed if the workers capitalized on education to upgrade their skills in line with the change in technology. The sentiments by Andrew and Tovey are misguided by the short run perception of job loss, oblivious of the interaction of aggregate supply and demand forces of labor that culminate in readjusted real wages in favor of the workers. Condemning technology change in favor of the labor intensive method is an irrational perception that overlooks the influencing goals of production i.e. economic profitability in a cost-effective manner. It would be consistent to concur with Bessen arguments that technology has never been the cause of unemployment. Instead, it is the inadequate accumulation of skills and the reluctance to shift the economic change that has subjected the low-skilled workers to the adverse effects of technology thrives.

In conclusion, education based on market-oriented skills will be the best capitalization factor to safeguard the working population from the looming redundancy influenced by a shift in technology. To avoid future unemployment impacts, industries could create industrial linkage platforms where school syllabus is re-aligned along the market demand for efficiency and innovation. Developing such a culture will safeguard the technology path from uneventful circumstances such as obsoleteness. In summary, technology is the vehicle that collects obsolete production mechanisms and upgrades them in line with the market demand.


Works Cited

Tovey, Alan. “Ten million jobs at risk from advancing technology.” Telegraph [London] 10 Nov. 2014: n. pag. Print.

Mcafee, Andrew, and Erik BrynJolfsson. “Why Workers Are Losing the War Against Machines.” Atlantic 26 Oct. 2011: n. pag. Print.

Cahuc, Pierre, Stéphane Carcillo, and André Zylberberg. Labor economics. MIT press, 2014.

Bessen, James. “Some predict computers will produce a jobless future. Here’s why they’re wrong.” Washington post 18 Feb. 2014: n. pag. Print.

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