Question

Rosenberg (2004) reported the invention of the new machine that serves as a mobile station for receiving and accumulating packed flats of strawberries close to where they are picked, reducing workers’ time and the burden of carrying full flats of strawberries. A machine-assisted crew of 15 pickers produces as much output, q*, as that of an unaided crew of 25 workers. In a 6-day, 50-hour workweek, the machine replaces 500 worker hours. At an hourly wage cost of $10, a machine saves $5,000 per week in labor costs or $130,000 over a 26-week harvesting season. The cost of machine operation and maintenance expressed as a daily rental is $200, or $1,200 for a 6-day week. Thus, the net savings equal $3,800 per week or $98,800 for 26 weeks.

1. Introducing machine assisted production is an example of technological innovation. Evidently, the example above helps to improve productivity. How does such an improvement affect the supply curve?
2. Such technological innovations were opposed in the past by Luddites that marched around destroying machines because they increased unemployment. Do you agree with such behaviors and how could they be justified? What are other possible social benefits of introducing labor saving technology?
3. From your earlier study of basic economics, what type of unemployment is created by such technological innovations? How can this type of unemployment, if at all it occurs, be mitigated or solved

Answer 1

a) since the new technology increase the productivity --> more output per unit of labour will be produced now --> supply of output will increase --> supply curve shifts to right

b)

• since the machine has replaced many labours --> unemployment will increase but the overall cost of production has decrease and also the productivity has increased. This means the wages of employed workers will actually increase, technological innovations should not be opposed.
• Laid off workers will also get employed slowly. This imcrease in 2 ways --
  • Increase in wages --> increase in demand -->production of more output --> setting up of new industries --> employ more labours.
  • The machine that was earlier created, it's demand will also increase. Now workers have to be employed to build such machine.
• Technological innovation can create 'Structural unemployment' - caused by mismatch between the skills.
  • That means employment is available but only for skilled workers.
  • Thus workers have to be skilled enough --> training --> this explains the time lapse between getting employed from being unemployed.
  • So this kind of unemployment problem can be solved by gaining skills.