Labor supply, biased technological change and economic growth

Abstract

A biased innovation model is used to study the effects of exogenous changes in the labor supply. In a context of biased innovations, as economies accumulate capital, labor becomes relatively scarcer and more expensive, for this reason there are incentives to adopt labor-saving technologies. Similarly, a change in the labor supply affects the abundance of factors and their relative prices. In general, a reduction in the labor supply makes work more expensive and creates incentives for labor-saving technological change. Thus, the initial effect that the change in labor supply has on factor prices is mitigated by technological change. Finally, movements in factor remuneration affect savings decisions and, therefore, growth dynamics. This paper explores the consequences of a reduction in labor supply in two different theoretical contexts: a model of homogeneous agents and horizonteinfinite and a model of overlapping generations.