Technology Adoption, Turbulence and the Dynamics of Unemployment, Economics Working Papers ECO2008/10

The divergence of unemployment rates between the U.S. and Europe coincided with a substantial acceleration in capital-embodied technical change in the late 70’s. Furthermore, evidence suggests that European economies have been lagging behind the U.S. in the adoption and usage of new technologies. This paper argues that the pace of technology adoption plays a fundamental role for how an economy’s labor market reacts to an acceleration in capital-embodied growth. The framework proposed offers a novel explanation for the divergence of unemployment rates across economies that are hit by the very same shock (i.e. the acceleration in embodied technical change) but differ in their technology adoption. Moreover, the results of the paper challenge the popular- but controversial- view that high European unemployment is the result of institutional rigidities by claiming that institutions are not the principal cause per se but they rather amplify certain forces that promote the emergence of high unemployment