Harrod-Neutral Technical Progress

Improvements in technology that increase the efficiency of labor. That is, harrod-neutral technical progress allows producers to make more with less. This generally results in lower expenses and, on a large scale, it can spur economic growth. However, it can also cause unemployment by making employees with certain skills unnecessary.

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Population grows at the rate [Mu] and Harrod-neutral technical progress, indexed by [[Lambda].sub.t], grows at the rate [Lambda] such that effective labor force at time t is [[Lambda].sub.0][L.sub.0][e.sup.([Lambda] +[Mu])t] where [L.sub.0] is the initial labor force.

We adopt Weil's (1989) set-up of infinitely-lived households extended by Harrod-neutral technical progress. Assuming each agent has a logarithmic utility function, we can derive the law of motion of aggregate per capita consumption given by

Before proceeding to use the model to analyze the effects of a temporary increase in the rate of Harrod-neutral technical progress, it will be useful to understand the steady-state properties of the model.

Productivity growth and public sector employment

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