ImpactofprocessinnovationonemploymentINeoclassicalmodel:Productionfunction. Y = Af (K,L)means GDP (Y) depends on capital (K), labor (L)and the levelof technology (A)·Y=AK~L1-α,0< α<1means increasing capital and labor on their own will increaseoutput, but on a diminishing rate (diminishing marginalproducts of K and L) > constant elasticity of substitution (CES)TechnischeUniversiteitTUEindhoven一University ofTechnology10/21/2013PAGE10EcononomicsofInnovation2013
Impact of process innovation on employment I • Neoclassical model: Production function • 𝑌 = 𝐴𝑓 (𝐾, 𝐿) means GDP (Y) depends on capital (K), labor (L) and the level of technology (A) • 𝑌 = 𝐴 𝐾 𝛼 𝐿 1−𝛼 , 0 < 𝛼 < 1 means increasing capital and labor on their own will increase output, but on a diminishing rate (diminishing marginal products of K and L) > constant elasticity of substitution (CES) Econonomics of Innovation 2013 10/21/2013 PAGE 10
Impact of process innovationonemploymentIl(g-1). Y= T[(AL) +(BK))where Y-is valueadded,Listhenumber ofworkers,Kis capital stock, constant elasticity of substitution (oshowshowfararecapitalandlaborsubstitutesforoneanother in production)T-Hicks-neutraltechnological change (equal productivity enhancingforbothfactorsleavingtheratioofthefactormarginalproductsunchanged)A-Harrod-neutraltechnologicalchange(newtechnologyaugmentstheproductivityof laborbutleaves the ratio of Y/K constant),B-Solow-neutraltechnological change(newtechnologyaugmentstheproductivityof capital butleavestheratioof Y/Lconstant)Technische UniversiteitTUEindhovenUniversityofTechnologyEcononomicsofInnovation201310/21/2013PAGE11
Impact of process innovation on employment II • 𝑌 = 𝑇 (𝐴𝐿) 𝜎−1 𝜎 + 𝐵𝐾) 𝜎−1 𝜎 (𝜎−1) where Y – is value added, L is the number of workers, K is capital stock, 𝜎 constant elasticity of substitution (𝜎 shows how far are capital and labor substitutes for one another in production) • T - Hicks-neutral technological change (equal productivity enhancing for both factors leaving the ratio of the factor marginal products unchanged); • A - Harrod-neutral technological change (new technology augments the productivity of labor but leaves the ratio of Y/K constant), • B - Solow-neutral technological change (new technology augments the productivity of capital but leaves the ratio of Y/L constant) Econonomics of Innovation 2013 10/21/2013 PAGE 11