Is there a positive relationship between technology and economic growth? It is generally acknowledged that there is a definite positive relationship between technological change and economic growth. However, the relationship is certainly not linear. How does this work?
Think about a world without innovation and technological change. Do you think there would still economic growth exist? In the short term probably yes, through copying and expanding existing activities. However, in the long-term, bottlenecks would arise and resources would become scare and expensive. Further, demand would decline and economic growth would eventually almost cease.
So Innovation allows for qualitative change in economic activities and enables to surpass bottlenecks to achieve income levels previously impossible.
Now let’s take a closer look on the relationship between technology and society: Technological innovation also transforms social norms and institutions. In general, it allows for new and differently organized economic activities.
So does innovation and technological processes create unemployment? Leontief’s basic argument was ““As long as total output goes up and all parts of the population share more or less evenly in its rise, all is well; but, as soon as output fails to rise, or when some groups fail to share in its rise, social and political tensions necessarily increase” (Leontief, 1983). This means that distribution depends on specific technological aspects, especially how much demand for labor is created. If we look on Figure 1 as well as Figure 2, we can see that employment participation rates show recent decline and also inequality has certainly worsened globally. Further, income share has certainly declines globally as well.
Figure 1
Figure 2
Concluding, the relationship between technological change, unemployment and economic growth is not fixed and it depends crucially on the the characteristics of both technology and socio-economic context. Those who combine technological knowledge with deep understanding of the contex will gain the ability to understand impact the future.
References:
Leontief, W. (1983). Technological Advance, Economic Growth, and the Distribution of Income. Population and Development Review, 9(3), p.403.
