The system-wide impacts of labour augmenting technological change

The employment impact of future technological change is much debated. Some commentators predict devastating job losses, while others are more sanguine, claiming that technological change raises living standards without reducing total employment. We employ a combination of partial equilibrium analysis and dynamic multi-sectoral computable general equilibrium (CGE) simulation to assess the system-wide implications of skill-biased labour-augmenting technological change. The numerical CGE results encompass, to a degree, both the pessimistic and optimistic perspectives. Labour-augmenting technological change typically stimulates GDP growth but, whilst having negative short- and medium-run impacts on employment and wages, it produces overall long-run employment benefits. This implies that, at least in the short run, there may be pressure on the Government to counteract negative labour market effects. Policy should focus on the skill-group whose efficiency remains unchanged. Our simulation results emphasise that the industrial structure, and the openness of the economy to migration and trade are crucial in absorbing the system-wide impacts of technological change