THE IMPACT OF TFP GROWTH ON STEADY-STATE UNEMPLOYMENT∗

Theoretical predictions of the impact of total factor productivity (TFP) growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs.We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, which implies that embodied technology and creative destruction play no role in the steady-state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained.