Technological change, productivity growth, and unemployment

Constructing total factor productivity growth numbers free of the effects of business cycle variations is, as the large recent literature on the topic has shown, a difficult exercise. But the trend evolutions are clear. In most countries, TFP growth has been lower-often much lower-than it was before the mid-1970s. And the decrease in the underlying TFP growth rate appears to have been quite abrupt, taking place largely during the second half of the 1970s. Given that this period also corresponds to the start of the rise in unemployment, it is tempting to see a causal link from productivity growth to unemployment. Furthermore, the decline has typically been larger in Europe than in the United States; this may help explain why the increase in unemployment has been larger in Europe.