technology shock

Article summary

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. 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. 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. 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.…

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