[OPE-L:3275] Re: Forms of technical change

Gerald Lev (glevy@pratt.edu)
Fri, 4 Oct 1996 18:17:19 -0700 (PDT)

[ show plain text ]

John asked in [OPE-L:3274]:

> No one denies that there are many examples of labor-saving forms
> of technical change. Are you claiming that those you list are
> not capital-saving as well?

Some are, some aren't.

Clearly, in recent years, many process technologies are capital-saving,
especially in terms of savings on constant circulating capital (e.g. more
energy-efficient technologies).

What is most important on the *micro level* is terms of the reasons for
adoption (labor-saving or capital-saving) is how the decision will affect
the cost structure of the firm.

I understood, perhaps mistakingly, you to be suggesting that labor-saving
advances in constant fixed capital in the period of "modern industry" are
not the norm. I don't believe that is the case.

In the example you gave (the mailing industry), that branch of production
is somewhat abnormal in at least two senses:

(1) it is a branch of production that is not as highly concentrated as
most branches of production are (and it is, therefore, still possible for
small firms to remain competitive and for barriers to entry and exit and
economies of scale to remain relatively small).

(2) it is a branch of production where the output is expanding due to
increased demand and decreasing price. This has hardly been the case
for most branches of production in recent years where output and demand are
relatively flat.

Both of these factors have an effect on what type of technical change is
adopted since in a market with where demand is relatively constant, firms
will not in general adopt technological advances which allow the firm to
expanded output significantly. However, they always have an incentive to
introduce labor-saving technical advances since that lowers the costs of
production per unit of output for the firm. Needless to say, the higher
the labor cost/worker (wages *plus* benefits, i.e. the total labor
cost/worker for the firm), the greater will be the incentive to introduce
labor-saving technical change, ceteris paribus. Of course, other factors
may come into play as well (e.g. management efforts at deskilling, state
regulatory policies, etc.).

In Solidarity,