SUFFICIENT CONDITIONS FOR AN INVERSE RELATIONSHIP BETWEEN PRODUCTIVITY AND EMPLOYMENT

This study examines the relationship between the competitive firm's re sponse to technological advances that improve labor productivity and t he firm's degree of risk aversion when output price is uncertain. One of the investigated cases reveal that when the firm's degree of risk a version is sufficiently large, a technological advance leads to a fall in optimal employment while optimal output rises. The results provide an explanation for the known inconsistency between the deterministic theory and empirical observations regarding employment and output effe cts of technological advances.