Monday, August 08, 2005
My students will be seeing this insight in some form next month.
The basic economic analysis of productivity growth goes like this:
- As long as human wants are unlimited, there is no constraint on the demand for labor to satisfy those wants. As long as markets are permitted to operate, with workers and firms free to choose wages and other contract terms, productivity growth will not cause unemployment.
- Productivity growth will make people richer, and as people get richer they tend to prefer leisure. They may choose shorter work weeks. They do not need government regulation to make such a choice.
- If "mass labor" disappears, that does not mean long unemployment lines. It means that people will continue the shift toward services.