Abstract

In recent years, the effects of technological change on employment have received much attention and raised fears about massive job losses as a consequence of “computerisation”.  However, we show analytically and empirically that technological change can have contradictory effects: On the one hand, profit-oriented firms can use new technologies to save labour ( substitution effect). On the other hand, firms might be able to lower prices due to higher productivity in order to gain market shares. Lower prices usually result in higher product demand, which leads to increased production and thus higher demand for labour (compensation effect). Our theoretical model shows that whether the substitution or compensation effect dominates depends on the demand conditions on product markets. More precisely, we demonstrate that the price elasticity of demand determines the direction of the effect of technological change on overall employment development. Therefore, we argue that any form of “technological determinism” is misleading. This project is among others devoted to the American labor market and compares the results with results on the German labor market.