The anser is the supply and demand of capital. Supply is increasing in the interest rate which determines the return to capital. Demand is decreasing through a declining MP K . See Figure 10.3. Some people think technical progress destroys jobs, but this is odd.
Successful countries have high technology and more employment.
See Figure 10.4. More technical progress leads to higher real wages and more jobs. If labour supply is vertical, which is probably pretty close to being true, it just increases real wages. Policy We discussed the costs of and limits to growth earlier in the course. Encouraging research and subsidising institutions that disseminate knowledge.