Employment and technology: Creative creation or creative destruction? An asymmetric analysis

Abstract

Theoretical predictions of the effect of technological change on employment are ambiguous and depend on the extent to which new technology is embodied in new jobs. This paper separates positive and negative shocks and examines the extent to which technological shocks have an asymmetric effect on unemployment in nine European countries by using hidden cointegration analysis within a likelihood‐based panel framework. The findings are consistent with the hypothesis that technological changes have had an unequal effect on unemployment because negative and positive shocks have different impacts on unemployment in terms of sign and size. It is interesting to note that women appear to be the group most negatively impacted by technological shocks. The estimates also show that the results are inconsistent because technological advancement has resulted in ‘creative destruction’ in four countries while ‘creative creation’ has occurred in five of them. It is worth mentioning that the methodological framework utilized in this paper can be a useful tool for predicting the behaviour of technological shocks. Policy implications are discussed.