An example of the function, where Y=output, L=labor, MPL=marginal product of labor. The technology shock increases the output given the same level of, in this case, labor. The marginal product of labor is higher after the positive technology shock, this can be seen in the MPL (blue) line being steeper.
Technology shocks are sudden changes in technology that significantly affect economic, social, political or other outcomes.[1] In economics, the term technology shock usually refers to events in a macroeconomic model, that change the production function. Usually this is modeled with an aggregate production function that has a scaling factor.
Normally reference is made to positive (i.e., productivity enhancing) technological changes, though technology shocks can also be contractionary.[2] The term “shock” connotes the fact that technological progress is not always gradual – there can be large-scale discontinuous changes that significantly alter production methods and outputs in an industry, or in the economy as a whole. Such a technology shock can occur in many different ways.[3] For example, it may be the result of advances in science that enable new trajectories of innovation, or may result when an existing technological alternative improves to a point that it overtakes the dominant design, or is transplanted to a new domain. It can also occur as the result of a shock in another system, such as when a change in input prices dramatically changes the price/performance relationship for a technology,[4] or when a change in the regulatory environment significantly alters the technologies permitted (or demanded) in the market. Numerous studies have shown that technology shocks can have a significant effect on investment, economic growth, labor productivity, collaboration patterns, and innovation.[5]
Positive technology shock
The Industrial Revolution is an example of a positive technology shock. The Industrial Revolution occurred between the 18th and the 19th centuries where major changes in agriculture, manufacturing, mining, transport, and technology occurred.[6]
What this did to the economy at the time was notable. It increased wages steadily over the period of time and it also increased population because people had the wages for standard living. This is an example of a positive technology shock, where it increases national and disposable income, and also increases the labor force. The Industrial Revolution also provided a much more efficient way to produce goods which lead to less labor-intensive work.[6]
The rise of the internet, which coincided with rapid innovation in related networking equipment and software, also caused a major shock to the economy.[7][8] The internet was a “general purpose technology” with the potential to transform information dissemination on a massive scale. The shock created both great opportunity and great uncertainty for firms, precipitating large increases in alliance activity and an increase in innovation across a wide range of sectors.[7]
Negative technology shock
The oil shocks that occurred in the late 1970s are examples of negative technology shocks. When the oil shocks occurred, the energy that was used to extract to oil became more expensive, the energy was the technology in this case.[clarification needed] The price of the capital and the labor both went up due to this shock,[9] and this is an example of a negative technology shock.
More examples
There are many examples of different types of technology shocks, but one of the biggest in the past couple of decades has been Web 2.0. Web 2.0 was a huge technological advancement in the e commerce business, it allowed for user interaction benefiting businesses in different ways.[10] It allowed for user feedback, ratings, comments, user content, etc. Web 2.0 revolutionized the online business as a whole, an example of a positive technology shock.
Real business cycle theory
Real business cycle theory (RBCT) is the theory where any type of shock has a ripple effect into many other shocks. To relate this to current times the upward price on oil is a RBCT because of the negative technology shock that happened due to the raise in price for the process of extracting of the oil. Now due to this increase in price for energy to extract the oil, fewer people could afford oil which drove economic activity down and at the same time lessens a countries national GDP. Typically, a RBCT starts with a negative type of shock, which is why the RBCT is becoming less and less relevant in today's economics. More and more economists are arguing against the RBCT because very rarely can you have a negative shock on technology with the amount of advancements we are going through now.[11]
↑ Schilling, M. A. (2015). "Technology Shocks, Technological Collaboration, and Innovation Outcomes". Organization Science. 26 (3): 668–686. doi:10.1287/orsc.2015.0970.
↑ Basu, S., Fernald, J.G., Kimball, M.S. (2006) "Are technology improvements contractionary?" American Economic Review 96:1418-1448.
↑ Schilling, M. A. (2015). "Technology Shocks, Technological Collaboration, and Innovation Outcomes". Organization Science 26 (3): 668–686. doi:10.1287/orsc.2015.0970.
↑ Ehrnberg, E. (1995) "On the definition and measurement of technological discontinuities." Technovation Volume 15, Issue 7, September 1995, pp. 437-452.
↑ Alexopoulos, M. (2011) "What Happens Following a Technology Shock?" American Economic Review, 101 (4): 1144-79. DOI: 10.1257/aer.101.4.1144; Christiano, L.J. Eichenbaum, M. and Vigfusson, R.J. (2003) What Happens after a Technology Shock? NBER Working Paper No. w9819. Available at SSRN: https://ssrn.com/abstract=421780; Galí, J. (1999) "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?" American Economic Review 89 (1): 249-271; Schilling, M. A. (2015). "Technology Shocks, Technological Collaboration, and Innovation Outcomes". Organization Science 26 (3): 668–686. doi:10.1287/orsc.2015.0970.
1 2 Landes, David S. (1969). The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge, New York: Press Syndicate of the University of Cambridge. ISBN0-521-09418-6.
1 2 Schilling, M. A. (2015). "Technology Shocks, Technological Collaboration, and Innovation Outcomes". Organization Science. 26 (3): 668–686. doi:10.1287/orsc.2015.0970. S2CID207244744.
Macroeconomics is a branch of economics which deals with the performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy's growth and stability. This includes regional, national, and global economies. According to a 2018 assessment by economists Emi Nakamura and Jón Steinsson, economic "evidence regarding the consequences of different macroeconomic policies is still highly imperfect and open to serious criticism."
In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of increase in the real gross domestic product, or real GDP.
Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entity realizing or redistributing value". Others have different definitions; a common element in the definitions is a focus on newness, improvement, and spread of ideas or technologies.
Business cycles are intervals of expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are measured by examining trends in a broad economic indicator such as Real Gross Domestic Production.
Organizational learning is the process of creating, retaining, and transferring knowledge within an organization. An organization improves over time as it gains experience. From this experience, it is able to create knowledge. This knowledge is broad, covering any topic that could better an organization. Examples may include ways to increase production efficiency or to develop beneficial investor relations. Knowledge is created at four different units: individual, group, organizational, and inter organizational.
In finance and economics, systematic risk is vulnerability to events which affect aggregate outcomes such as broad market returns, total economy-wide resource holdings, or aggregate income. In many contexts, events like earthquakes, epidemics and major weather catastrophes pose aggregate risks that affect not only the distribution but also the total amount of resources. That is why it is also known as contingent risk, unplanned risk or risk events. If every possible outcome of a stochastic economic process is characterized by the same aggregate result, the process then has no aggregate risk.
In economics, a shock is an unexpected or unpredictable event that affects an economy, either positively or negatively. Technically, it is an unpredictable change in exogenous factors—that is, factors unexplained by an economic model—which may influence endogenous economic variables.
Induced innovation is a microeconomic hypothesis first proposed in 1932 by John Hicks in his work The Theory of Wages. He proposed that "a change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind—directed to economizing the use of a factor which has become relatively expensive."
A supply shock is an event that suddenly increases or decreases the supply of a commodity or service, or of commodities and services in general. This sudden change affects the equilibrium price of the good or service or the economy's general price level.
Deindustrialization is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially of heavy industry or manufacturing industry.
In conservation and energy economics, the rebound effect is the reduction in expected gains from new technologies that increase the efficiency of resource use, because of behavioral or other systemic responses. These responses diminish the beneficial effects of the new technology or other measures taken. A definition of the rebound effect is provided by Thiesen et al. (2008) as, “the rebound effect deals with the fact that improvements in efficiency often lead to cost reductions that provide the possibility to buy more of the improved product or other products or services.” A classic example from this perspective is a driver who substitutes a vehicle with a fuel-efficient version, only to reap the benefits of its lower operating expenses to commute longer and more frequently."
In economics, deskilling is the process by which skilled labor within an industry or economy is eliminated by the introduction of technologies operated by semi- or unskilled workers. This results in cost savings due to lower investment in human capital, and reduces barriers to entry, weakening the bargaining power of the human capital. Deskilling is the decline in working positions through the machinery introduced to separate workers from the production process.
In economics a spillover is an economic event in one context that occurs because of something else in a seemingly unrelated context. For example, externalities of economic activity are non-monetary spillover effects upon non-participants. Odors from a rendering plant are negative spillover effects upon its neighbors; the beauty of a homeowner's flower garden is a positive spillover effect upon neighbors.
Mark Jonathan Dodgson is an Australian academic and author. His research on the innovation process has influenced innovation management and policy worldwide.
Real business-cycle theory is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.
Technological unemployment is the loss of jobs caused by technological change. It is a key type of structural unemployment.
Open collaboration is any "system of innovation or production that relies on goal-oriented yet loosely coordinated participants who interact to create a product of economic value, which is made available to contributors and noncontributors alike." It is prominently observed in open source software, but can also be found in many other instances, such as in Internet forums, mailing lists and online communities. Open collaboration is also thought to be the operating principle underlining a gamut of diverse ventures, example including bitcoin, TEDx, and Wikipedia.
The economics of digitization is the field of economics that studies how digitization, digitalisation and digital transformation affects markets and how digital data can be used to study economics. Digitization is the process by which technology lowers the costs of storing, sharing, and analyzing data. This has changed how consumers behave, how industrial activity is organized, and how governments operate. The economics of digitization exists as a distinct field of economics for two reasons. First, new economic models are needed because many traditional assumptions about information no longer hold in a digitized world. Second, the new types of data generated by digitization require new methods for their analysis.
Melissa A. Schilling is an American innovation scholar and professor. She holds the John Herzog Family chair in management and organizations at NYU Stern, and she is also the Innovation Director for Stern's Fubon Center for Technology, Business and Innovation. She is world known as an expert in innovation, is the author of the leading innovation strategy text, Strategic Management of Technological Innovation, and is a coauthor of Strategic Management: An Integrated Approach. She is also the author of Quirky: The remarkable story of the traits, foibles, and genius of breakthrough innovators who changed the world. She and her work have been featured on NPR's Marketplace, Bloomberg BusinessWeek, Entrepreneur, Inc., Harvard Business Review, Huffington Post, CNBC, Scientific American, and USA Today, among others. She also speaks regularly at national and international conferences as well as corporations on strategy and innovation.
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