Working Paper No. 179 | December 1996

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.

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