Technological change, labour markets, and economic performance

This thesis consists of three chapters that offer valuable insights into the roles of technological advancement, labour search, and taxation subsidy schemes in shaping macroeconomic dynamics and performance. Chapter 1 examines a DSGE model that incorporates labor market frictions to explore the effects of automation-specific technology shocks on productivity and welfare among households. A key feature is the automation channel, which influences productivity, the labor market, and welfare across different types of households. The findings indicate that the shock increases labor market fluctuations and serves as a driving force for economic growth, benefiting the welfare of skilled households. However, it appears to adversely affect the welfare of unskilled households. Chapter 2 presents a comprehensive Roy model that includes two distinct types of abilities—physical and cognitive—across three sectors: skilled, unskilled, and learning. The primary goal is to assess how technological advancements, such as skill-biased technology and shuffle shocks, impact occupational choice, employment, output, productivity, and skill premiums. The research reveals that both skill-biased technology and shuffle shocks significantly influence decision-making and various economic outcomes. Additionally, the interaction of these shocks explains the J-curve phenomenon in the skill premium observed in the United States, where the skill premium initially declines before rising substantially to a higher level. Chapter 3 extends the Roy model by incorporating the economic redistribution tools, such as progressive income tax systems, targeted transfer payments, and learning subsidies aimed at promoting skill development. The study finds that the overall output tends to improve with higher tax rates, primarily because individuals often have limited access to capital markets. This limitation forces them to spend their entire income rather than save or invest. Tax and transfer programs help alleviate this issue by redistributing funds from higher-income individuals to lower-income households, thereby enhancing income equality and boosting overall economic activity.