Elevator pitch
The relationship between technology and employment has always been a source of concern, at least since the first industrial revolution. However, while process innovation can be job-destroying (provided that its direct labor-saving effect is not compensated through market mechanisms), product innovation can imply the emergence of new firms, new sectors, and thus new jobs (provided that its welfare effect dominates the crowding out of old products). Nowadays, the topic is even more relevant because the world economy is undergoing a new technological revolution centred on automation and the diffusion of Artificial Intelligence (AI).
Key findings
Pros
Product innovation may imply the emergence of new firms and new sectors and thus new jobs; provided that the welfare effect dominates the substitution effect (novel product innovation).
Price and income compensation mechanisms can counterbalance the initial displacement of workers that occurs following process innovation (direct labor-saving effect).
Disentangling the relationship between new technologies (robots and AI) and the labor market allows to single out a possible job creation effect in the upstream industries, that are the suppliers of new technologies/new products.
Industrial and innovation policies that support genuine product innovation and upstream industries can foster job creation.
Cons
New products may displace old products and so hinder the job-creation effects implied by the diffusion of the new activities (substitution effect).
Process innovation may displace labor and create technological unemployment (direct labor-saving effect).
Market and institutional rigidities can weaken the price and income compensation mechanisms that work to lessen job destruction.
With regard to automation and AI technologies, possible job destruction may occur in the downstream industries (the adopters of new technologies implying process innovation).
