Sbi Po

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  • Topic: Unemployment, Labor force, Discouraged worker
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Edward N. Wolff New York University INTRODUCTION It is widely recognized that in the industrialized economies there has been a dramatic rise in the average duration of unemployment during recent decades. Though it has been most severe during periods of high unemployment rates, even at other times the length of time between jobs of an average unemployed worker has increased substantially. Here I offer one such hypothesis, ascribing at least part of the phenomenon to the information technology “revolution,” and provide empirical evidence for this proposed explanation. I will argue here that when the rate of technical transformation is high, the average duration of unemployment is likely to rise. Moreover, the duration of unemployment is likely to increase relatively more for older workers than younger ones and for the poorly educated than those with more schooling. While there is a voluminous literature on causes of unemployment and the unemployment rate, there is a much smaller literature on technological factors that influence unemployment duration. For example, Richard Layard and Stephen Nickell, who have worked extensively on unemployment issues, argued in a 1991 paper that the persistence of unemployment depends on the benefit and wage determination systems, and also on the degree of employment flexibility. However, there are a couple of papers related to this subject. Aaronson and Housinger [1999] looked at the effects of new technology on the reemployment of displaced workers. They found that increases in new technology, as measured by R&D intensity and computer usage, decreased the likelihood of displaced workers finding new employment after being laid off. Their results also indicated that both older and less skilled workers had greater difficulty finding a new job after displacement. Friedberg [2001], using data on individual workers from the Current Population Survey, concluded that impending retirement reduces the incentive of older workers to acquire new skills, particularly with regard to computer usage. Then using data from the Health and Retirement Survey, Friedberg [2001] found that computer users retire later than nonusers. On the basis of Instrumental Variables regression analysis, Friedberg [2001] estimated that computer use directly lowered the probability of retiring. Section 1 will review the basic data on unemployment duration for the United States. In Section 2, I will provide a rather elementary discussion, arguing that the introduction of a new technological “regime” might increase search time for displaced workers. Section 3 shows time trends and provides descriptive statistics on the key Edward N. Wolff: Department of Economics, New York University, 269 Mercer Street, 7th Floor, New York, New York 10003. E-mail:

Eastern Economic Journal, Vol. 31, No. 4, Fall 2005




variables of interest in the analysis. The fourth section provides an econometric investigation of the relation between computerization and the duration of unemployment. Concluding remarks are provided in the fifth and final section. It should be stressed at the outset that in saying that duration of unemployment can be increased by a technology revolution as occasioned by the diffusion of information technology, I am not asserting that this is the only source of that development. Clearly, duration is affected by many other influences—the structure of the unemployment insurance system, other elements of public policy, union power and behavior, international trade developments, and a profusion of others. The econometric study seeks to take account of such variables, as well as measures of the speed of technical change. Its results shed light on the role of these other variables and provide support for my hypothesis. TRENDS IN THE DURATION OF UNEMPLOYMENT With a given unemployment rate, duration of joblessness can vary...
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