Saturday, September 23, 2006

Technology, employment and elasticity

Brad Delong has an excellent post reviewing a new book purporting to refute Adam Smith's "fallacies". The whole review is worth a read.

However, there is one part that touches on the topic of price elasticities we discussed last class.

"If the elasticity of demand is low, rapid technological progress in one industry might be associated with a reduction in the demand for labor in those industries. But it would not be if the elasticity of demand is high. For Foley to say that this technological unemployment in low demand-elasticity industries is "one immediate negative effect" of the division of labor without also saying that technological employment in high demand-elasticity industries is "an additional immediate positive effect" of the division of labor--that's Foley putting his thumb on the scales in a foolish way."