03030cam a22002897 4500001000700000003000500007005001700012008004100029100002400070245007800094260006600172490004200238500001900280520128000299520031301579530006101892538007201953538003602025690020502061690005702266690010002323690012302423710004202546830007702588856003802665856003702703w20670NBER20191121043129.0191121s2014 mau||||fs|||| 000 0 eng d1 aStiglitz, Joseph E.10aUnemployment and Innovationh[electronic resource] /cJoseph E. Stiglitz. aCambridge, Mass.bNational Bureau of Economic Researchc2014.1 aNBER working paper seriesvno. w20670 aNovember 2014.3 aThis paper analyzes equilibrium, dynamics, and optimal decisions on the factor bias of innovation in a model of induced innovation. In a model with full employment, we show that (a) if the elasticity of substitution is always less than or greater than unity, there is a unique steady state equilibrium; (b) if the elasticity of substitution is less than unity, the steady state is stable, but convergence is oscillatory; (c) if the elasticity of substitution is greater than unity, the steady state is a saddle point; and (d) if the elasticity of substitution is less than unity for both high and low effective capital labor ratios but greater than unity for intermediate values, then there can be multiple steady states. In a model where efficiency wages lead to equilibrium unemployment, we show that if the elasticity of substitution is less than unity, there will be a bias towards excessive labor augmenting innovation, resulting in too high unemployment, with convergence to the unique steady state being oscillatory, rather than monotonic. Similarly, if the elasticity of substitution between skilled and unskilled labor is less than unity, and there is efficiency wage unemployment for unskilled labor only, there is will be excessively skill-biased innovation.3 aThis paper provides an alternative resolution to the Harrod-Domar conundrum of the disparity between the natural and warranted rate of growth to that of Solow, with strong policy implications, for instance, concerning the effects of income distribution and monetary policy both in the short run and the long. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aE24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity2Journal of Economic Literature class. 7aO30 - General2Journal of Economic Literature class. 7aO31 - Innovation and Invention: Processes and Incentives2Journal of Economic Literature class. 7aO33 - Technological Change: Choices and Consequences • Diffusion Processes2Journal of Economic Literature class.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w20670.4 uhttp://www.nber.org/papers/w2067041uhttp://dx.doi.org/10.3386/w20670