The Wedge Between Output and Employment Growth: Ar…

The Wedge Between Output and Employment Growth: Archive Entry From Brad DeLong’s Webjournal

Seem’s pretty straight forward. The economy grows because of productivity improvements. Each worker can produce more stuff. Also, if the unemployment rate goes up, the economy shrinks. Less workers to produce the stuff. So employment and productivity are substitutes for each other.

Well, today we have a situation were productivity and the economy are rising but unemployment is rising, too. This is easy to explain by saying that income gains from productivity increases are outstripping the income losses from unemployment.

Question: is there a causal relationship between productivity and unemployment or are they really perfect substitutes? I mean, is there some future economy that has such high productivity that it only takes one worker to produce all the output. Two follow-ups: First, what happens if productivity goes to infinity? No workers required and 100% unemployment? Second, is it ‘bad’ for productivity to replace employment?