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Economic Quarterly

Fall 2004

Ricardo versus Wicksell on Job Losses and Technological Change

Thomas M. Humphrey

Are labor-saving innovations job creators or job destroyers? Do they help or hurt labor? These issues, hotly disputed in recent worries over offshore outsourcing, are of older origin. In 1821 David Ricardo argued that technological progress embodied in a new machine permanently hurts labor. It lowers gross product, eliminates jobs, and, by forcing wages below subsistence, decimates the labor force. A century later, Knut Wicksell refurbished Ricardo's classical model with modern concepts and assumptions to show that the opposite is true: Technological progress boosts gross product while preserving jobs. Innovation, if supplemented with profit-sharing schemes, benefits all.

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