Technological Change in an Unstable Labor Market: A Dynamic System Approach

Abstract

The rise of digital technologies, robots and computers has once again drawn attention to questions about the economic impact of technological progress. While process innovation is usually associated with productivity gains and a corresponding displacement of labor, product innovation is assumed to have rather positive effects on employment. We incorporate both channels of technological change by considering their different effects on productivity, needs, and expectations in a stock‐flow consistent dynamic system approach. The highly simplified economic system presented in this article is based on standard assumptions, while with regard to technological progress and its effects the model allows for the emergence of off‐equilibria paths and an unstable labor market. The chosen framework illustrates key dependencies in market economies, but simultaneously ties in with a fundamental level and thereby leaves space for shortcomings. Both may be seen as contribution to further developments as science, just like technological change, partly always will be a process of trial and error.