Extant empirical studies document that productivity gaine due to technological progress often lead to reductions in employment. This paper rationalizes the stated empirical finding within the context of the theory of the competitive firm under price uncertainty. We show that technological progress affects employment adversely if the firm’s coefficient of relative risk aversion is no less than unity and its production technology exhibits non-decreasing returns to scale. On the other hand, technological progress unambiguously increases output if the firm’s preference is non-increasing absolute risk aversion.
Chow, K. W. C., & Wong, K. P. (1999). Further sufficient conditions for an inverse relationship between productivity and employment (HKIBS Working Paper Series 032-989). Retrieved from Lingnan University website: http://commons.ln.edu.hk/hkibswp/26