The Economics of Technological Change and Employment in the Digital Machine Age

Contents

1 Introduction

2 The Economic History of Technological Change

2.1 From Industrial Revolution to Automation

2.2 From Automation to Digitization

3 The Neoclassical Theory of Technological Change and Employment

3.1 Types and Drivers of Innovation

3.2 Compensation Theory of Labor-Saving Technological Change

3.3 Labor-Saving Technological Change

3.4 A Neoclassical Model of Technological Change and Employment

4 Estimating the Impact of Technological Change on Employment Measures

4.1 Description of the Model

4.2 Building the Model

4.3 Estimation Results

5 Conclusion

Objectives and Research Focus

This master thesis investigates the relationship between technological change, specifically regarding automation and digitization, and its impact on employment levels within the German manufacturing sector over the last two decades. The central research question examines whether the observed structural changes and increased capital productivity lead to net employment losses or shifts in labor demand, challenging existing pessimistic predictions regarding the "digital machine age".

• Economic history of technological change and the transition from automation to digitization.
• Neoclassical theoretical frameworks for compensation mechanisms and labor-saving technical progress.
• Empirical estimation of employment effects using a vintage-capital approach in German manufacturing.
• Analysis of the impact of newly acquired capital, scrapped equipment, and capital productivity on payroll, hours worked, and headcount.
• Evaluation of policy implications regarding Industry 4.0 and future labor market scenarios.

Excerpt from the Book

Summary of Chapters

1 Introduction: Provides an overview of the historical context of technological unemployment and defines the research scope concerning the German manufacturing sector and digital transformation.

2 The Economic History of Technological Change: Explores the evolution of technological progress from the Industrial Revolution through to contemporary digitization, discussing classical, neoclassical, and Keynesian perspectives.

3 The Neoclassical Theory of Technological Change and Employment: Details the theoretical modeling of innovation, compensation mechanisms, and various approaches to labor-saving technological change within a neoclassical framework.

4 Estimating the Impact of Technological Change on Employment Measures: Presents the methodology, including the vintage-capital approach, and empirical results regarding the effects of new and scrapped capital on labor variables.

5 Conclusion: Summarizes the findings, addresses the limitations of the empirical models, and discusses implications for public finance, future research, and societal challenges like basic income.

Keywords

Technological Change, Employment, Automation, Digitization, German Manufacturing, Vintage-Capital Approach, Labor Productivity, Compensation Theory, Industry 4.0, Neoclassical Economics, Capital Stock, Scrapping, Skill-Biased Technological Change, Wage Inequality, Potential Output.

Frequently Asked Questions

What is the primary goal of this research?

The primary goal is to analyze the impact of technological change, particularly digitization and automation, on employment levels in the German manufacturing sector to determine if it leads to net job losses.

Which economic sector is the focus of the empirical analysis?

The empirical analysis focuses specifically on the German manufacturing sector from 1991 to 2013.

What is the main theoretical framework used?

The work primarily employs neoclassical theory, supplemented by historical analysis and a specific "vintage-capital" approach for empirical modeling.

How is technological change defined in the empirical model?

Technological change is interpreted as embodied in newly acquired capital, utilizing the "vintage approach" to account for the productivity differences of capital stock of various ages.

What are the compensation mechanisms discussed?

The thesis discusses five mechanisms: new machines, decrease in prices, new investments, new products, and decrease in wages.

Are the findings in line with common "end-of-work" predictions?

The study finds that the pessimistic predictions (e.g., by Brynjolfsson and McAfee) cannot be confirmed entirely for the German manufacturing sector within the observed period.

What impact does "scrapped capital" have on employment?

The empirical results consistently show that scrapped capital has a negative impact on employment, as it reflects the decommissioning of machinery that previously occupied labor.

How does capital productivity affect employment in the model?

Higher average and marginal capital productivity generally showed a positive correlation with labor indicators like hours worked and headcount, suggesting a labor-augmenting effect of new investments in this specific context.

What role does capacity utilization play in the analysis?

Capacity utilization acts as a control variable for economic cycles, with the results indicating it affects labor demand, though the sign of the coefficients varied across different estimation models.