Protracted Frictional Unemployment As a Heavy Cost of Technical Progress
In this working paper, Research Associates William Baumol and Edward N. Wolff, both of
New York University, explore the effects of the rate of technological progress on
unemployment. They hypothesize that the sunk costs associated with a worker’s training will
depend on his or her previous training and education and the current pace of technological
change. The faster the pace of change, the greater the sunk training costs, although education
moderates the magnitude of those costs. A firm weighs wage and sunk training costs against a
worker’s marginal revenue yield. These factors combine to the disadvantage of the poorly
educated, who will be forced to accept either a low wage or a longer duration of
unemployment. A faster pace of technological change exacerbates this disadvantage.
Associated Programs
- Employment Policy and Labor Markets