Effects of Technological Shock on Employment: Application of Structural Approach VECM

This article examines the link between technological changes and employment. The objective of this work is to determine the impact of technological innovations in the short and long term. In all the developed countries, the unemployed are rather low-skilled whereas highly skilled employees face less unemployment problems. Several studies have shown that technical progress leads to the casualization of non-skilled labor and to unemployment. This idea is based on the substitution of capital at work. Moreover, technical progress requires a skilled workforce capable of creating, innovating, and controlling further progress. Thus, technological innovations are not neutral; there are skill-biased technological changes. However, according to the theory of compensation, technological innovations reduce short-term employment (replacement effect) but create it in the medium and long term (compensation effect). The empirical validation of this work is based on the technique of structural VECM for the case of Tunisia. Unlike the theory of compensation, our results support the fact that the short-term effect of technological innovations on employment is positive; however, in the medium and long term, it is negative.