Category Archives: technical change

Technical Change Without Growth

A couple of weeks ago the Economist published an interesting article about labour markets and secular stagnation, the problem of low productivity despite apparent technical change in the industrialised world that has attracted the attention of economists such as Krugman, Summers and Cowen. The article examines a number of puzzling features of the current economic conjuncture. It argues that technological change substitutes for medium-skill labour, displacing workers into low-skilled work, leading to a fall in the price of low-skilled labour, making automation of low-skilled work unattractive. So under certain circumstances, technological change may be self-limiting. The article discusses how these features may be related to low aggregate demand and the expansion of consumer credit.

One possible takeaway from this divergence is that productivity is often endogenous to the real wage. Confronted with high real wages, firms reorganise production, invest in training and capital, and take other steps to boost productivity and economise on labour. When real wages are falling, by contrast, the incentive to economise is reduced and productivity lags.

There’s an interesting overlap with some of the analyses put forward by a previous generation of radical political economists, whose work I’ve been taking another look whilst preparing for a undergrad course I’m teaching. Emmanuel argued that productivity doesn’t drive high wages in the industrialised world, high wages drove industrialisation and productivity increases. This argument is too absolutist and is not consistent with most accounts of industrialisation in the West, but acknowledging that productivity is endogenous to the real wage is an important observation for understanding some aspects of the political economy of unequal development. As the Economist article suggests, the level of endogeneity may be greater than previously assumed – with significant consequences for both national political economies and the world economy.

Of course, the Economist doesn’t draw out the full implications of this analysis in terms of power relations and the conflicts of interest that exist between different social groups on a national and global level. Also missing from the article is any sense that technical change involves struggle and the assertion of authority. But hey, for an article in the Economist to acknowledge that ‘Distributional issues are key’ is pretty unusual.